When it comes to large-scale projects, the majority of municipalities can't take on large burdens alone.
They often go to Newfoundland and Labrador Municipal Financing, under the provincial Department of Financing, for a loan.
The payments made on the loan, divided by the town's annual budget, is known as the debt ratio.
As the debt ratio rises, municipalities often have no other choice but to raise taxes, or reduce services, to try to pay down the debt.
According to David Hiscock, Bonavista town manager, the highest any municipality can reach is around 30 per cent - or 30 cents of every budgeted dollar.
He strongly recommends no one exceed 20 per cent.
Municipalities would be smart to heed Hiscock's advice because he's spent several years watching the town pay off a 30 percent debt ratio. Including interest, he says, it was roughly $10-million.
Ten years ago, Hiscock said the town was paying $80,000 a month on its debt, leaving the town to scramble to find funds.
"There were lean times," he said. "There were times where we had to really scrutinize our budget, but we got through it."
A debt relief solution was offered at the cost of amalgamation with the nearby town of Elliston. He said the town didn't want any part of it.
To secure extra dollars, Hiscock said, the mil rate on property tax jumped three points and water rates were doubled.
"That was basically unheard of, it was 100 per cent increase in water rates, but it kept us going," he said.
Borrowing during high interest times - between 18 and 19 per cent - was the biggest reason for the high debt, said Hiscock.
He approached the banks for answers, and found a solution.
The town would take out a lower interest loan from a bank to pay the government off in a lump sum. He said the payments would also be grouped into two categories - five and 10-year payoffs.
With a bank loan interest of five per cent, Hiscock said the town's monthly payments dropped by $20,000.
"We were saving big time," he said.
By cutting the interest rate, Hiscock said, the town was able to pay down the debt without any further burden to taxpayers.
In the last eight years, he said, taxes have only been raised half a mil.
But that doesn't mean there hasn't been more paid in property taxes.
Bonavista has seen property values increase over the years. As a home's worth increases, so does the property tax.
Last year, he said, property values in the town increased by roughly five per cent.
"The buying power of a dollar has depreciated," said Hiscock. "The increased property tax can offset that, and keep us on a level playing field."
Through the approach taken, Hiscock said, the town has paid down its debt to 10 per cent of its budget. He says this puts the town in a great position for the future.
"If something happens and needs to get done, we are in a position to make it happen. Before there wasn't a chance in the world," he said.
For example, in its budget for next year the town is proposing several projects.
Hiscock said the town will be looking to put in a new water transmission line, pump house, and refurbishing an existing water tower.
Pending approval, he said, it's a $4 million cost-shared project, with the town responsible for 20 per cent.
Hiscock said the low debt ratio can make it happen.
"If we still had a 30 per cent debt, we wouldn't have been able to ask for the money with a straight face," he said.
"The bottom line, the municipality has ended up with half a million dollars of cash that it didn't have before and it can be used for all kinds of stuff. When the government asks how we are going to pay our contribution, we've got the cash on hand or numbers to play with."
Looking back, he stands firm in saying no municipality should exceed a 20 per cent debt.
"We operated at 30 per cent of our useable income gone before we got it. That's too much when you're trying to provide services for the town," he said.
"If something comes up you're constantly scratching your head wondering where the money is going to come from.
"I've been there, done that and it's a struggle."
