DBRS Confirms the Long-Term Debt Rating of the City of Hamilton at AA

DBRS has today confirmed the Long-Term Debt rating of the City of Hamilton (the City or Hamilton) at AA. The trend remains Stable as Hamilton maintains healthy credit fundamentals, underpinned by its moderate debt burden and sound fiscal management, which has led to multiple years of post-capex surpluses while continuing to fund a substantial portion of capital projects on a pay-as-you-go basis. However, similar to other mature municipalities, the City is hampered by the considerable task of maintaining its aging infrastructure, which is expected to put adverse pressure on its credit metrics in the years ahead. In addition, the temporary closure of U.S. Steel Canada’s Hamilton facility has introduced an element of uncertainty in the long-term outlook of the City. Although the closure is expected to be temporary, the possibility of it being permanent cannot be ignored as it would further hinder the region’s growth prospects.

In line with Ontario’s provincial legislation, the City produced a balanced operating budget for 2008. However, Hamilton now forecasts that the City’s 2008 results will report a modest favourable variance. The proposed 2009 operating budget addresses rising costs, including a forecast 5% increase in the Ontario Works caseloads, a result of the increasing unemployment rate and the poor economic outlook. Furthermore, balancing the budget requires an increase of around 1.9% in the residential property tax rate, although it has yet to be approved as the City is in the process of finalizing the budget and the necessary tax increase.

Hamilton’s net tax-supported debt was forecast to finish 2008 at a moderate $321 million, or $616 per capita. However, beyond 2009, the City is projecting considerable spending pressures from infrastructure repair and rehabilitation needs, which are expected to compound as the planned capital expenditures are insufficient to meet the City’s needs. Moreover, persistent operating budget pressures and deteriorating economic conditions could, in the absence of new funding sources, lead to greater use of debt to fund capital projects. DBRS notes, however, that Ontario’s recent decision to gradually upload social service costs over the next ten years will provide some increased operating flexibility that could lead to more funds being available for pay-as-you-go capital financing and alleviate some capital spending pressures. In addition, the federal and Ontario governments have temporarily increased funding in their 2009 budgets to provide stimulus to Canadian municipalities, which could lessen Hamilton’s capital spending pressures over the near term.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Municipal Governments, which can be found on our website under Methodologies.

This is a Corporate (Public Finance) rating.