GFOABC Online Forum

mike kennedy, cfo of rossland

Your GFOABC membership comes with a lot of perks. Discounted pricing on webinars and courses, a year chock full of professional development and networking events like our Annual Conference, Boot Camp and Fall PD. While all those are great, the most powerful tool at your disposal is access to our online forum.

Through the Online Forum, local government finance professionals can access an archive of information going back to 2016, ask or answer questions to and from fellow finance professionals, and share pertinent documents.

To understand the true value of the forum, we reached out to several GFOABC members who have made visiting and engaging with the forum a part of their day-to-day and will be sharing their takes over the course of the next four newsletters.

Up first is Mike Kennedy, the CFO of Rossland and a self-described ‘recovering auditor’. He’s been in the role since June 2021

Here are his answers to a few of our questions:

WHY DO YOU USE THE ONLINE FORUM?

I see the forum as a tool to minimize and manage the risks that come with my role as CFO. It’s especially helpful during ‘busy seasons’ like HOG time, and when an issue is impacting multiple municipalities like the VADIM price increase. The fact that discussions and information is archived on the forum is also helpful. It’s a huge time saver when I’m trying to track down information on policies, procedures and templates.

HOW OFTEN DO YOU LOG ON TO THE ONLINE FORUM?

I’ll typically log on two to three times a week. I like to check in on what issues my colleagues are running into or seeing what ideas they may have when it comes to answering or solving a particular problem. When it comes to tackling issues associated with my role as CFO, the forum has become an indispensable resource.

HOW DO YOU THINK EXPANDED ENGAGEMENT ON THE ONLINE FORUM AMONG GFOABC MEMBERS CAN HELP THEM IN THEIR DAY TO DAY?

As the CFO of a smaller municipality, it’s really helpful to be in the loop on what’s going on around the municipal finance world, particularly as it relates to troubleshooting or planning for any issues that are coming up on the horizon. The archive of information is super helpful when I need to navigate a policy or procedure, find a template and anything else I need. The more of us adding information to that archive, the easier it makes it for any of us to efficiently solve a problem or make sure we’re doing things by the book.

WHAT ARE SOME OF YOUR PERSONAL BEST PRACTICES WHEN IT COMES TO ENGAGING ON THE FORUM?

I always make sure to post or request others post pertinent documents directly in the forum (rather than sending them via email or DM). As long as there aren’t any privacy issues, it’s great to add to the archive of information and have access to those documents down the road. Something I also try to keep in mind is to have

some fun on there! Of course, it’s a forum for finance professionals and ultimately, we’re all there to do our jobs better, but I find injecting a little bit of appropriate humour like a meme or GIF keeps things light and can break up the day. We’ve all got enough to worry about through the course of our workdays!

A big thank you to Mike for agreeing to take part in our survey. His contribution to the forum has been invaluable for fellow members, and he’s a great example of how participating and collaborating on the forum can benefit not just individuals, but the entire GFOABC community.

Stay tuned for December’s newsletter where we’ll hear from another engaged forum user.

MFA’s Corner

Why Does MFA Use Actuarials Again? Seems Complicated!

During my presentation covering long-term debt at GFOA’s Boot Camp last month, I received a great question from one of the attendees: Why does MFA use actuarials instead of just having a simple declining balance repayment schedule like you would get at the bank? It seems so complicated!

As a review, MFA raises monies to fund long-term loans by issuing debentures in the capital markets. These are typically bullet debentures, meaning the principal will be repaid to the bondholders at maturity and interest will be paid semi-annually. Local governments are required to make 2 semi-annual interest payments and one annual principal payment. Interest payments are materially a flow through to the investors. With bondholders not requiring principal repayment till maturity and MFA collecting principal annually, it gives the opportunity for MFA to invest those principal payments to the credit of our Members.

The actuarial is the anticipated earnings on these principal payments and is first recognized one year after the first principal payment and recognized annually until loan expiry. These earnings reduce the outstanding loan obligation and as such borrowers may write down the balance of their loan annually by this amount. Over the life of the loan, the sum of principal payments and actuarial amounts equal the gross amount of the loan.

For the last 50 years, MFA has employed an actuarial credit that utilized the same rate regardless of the term of the loan the client selected (5 through 30 years). At the time of writing, it is expected that the actuarial rate for the fall issue will be 3.25%.

Having the same rate assigned to all terms has inherently caused the 5-, 10- and 15-year loan terms to receive an actuarial credit that is above what is earned over these loan periods, relative to longer-dated loan terms (20, 25, and 30 years). The longer-term loans subsidized a higher rate paid to shorter-dated loan terms and as a result, received less than deserved.

In 2023, MFA will set different actuarial rates by loan term meaning 5-year loans, for example, will receive a much lower rate of actuarial credit over its life relative to a 30-year loan. Naturally, you would expect to earn less over 5 years versus 30 years.

This will allow MFA to set a rate more accurately reflective of each term’s likely earnings, keep loan lending spreads above our cost of funds minimal, reduce inter-period actuarial rate fluctuations and reduce endof-term surpluses to ensure cash is kept in the hands of local government over the loan terms, not paid out after a loan term ends which can be 30 years.

The actuarials for existing issues will not be affected by this change and will continue to be evaluated individually. If they require prospective adjustment, participants in those issues will be notified individually. Please note that the MFA reserves the right to adjust actuarials at any time, but in practice, we try to limit changes to refinancing dates.

SHELLEY HAHN is the Chief Services Officer with the Municipal Finance Authority of British Columbia (MFA) and joined the Authority in 1997. She directs the operations of all MFA’s short-term lending and investment products and oversees all requests and approvals for financing. Shelley is also responsible for all legal, legislative and securities compliance within the organization. Shelley has been on the Board of the Government Finance Officers Association of British Columbia (GFOA) since 2005 and is very active in developing educational opportunities for MFA’s clients and GFOA Members.