DBRS Confirms City of Calgary at R-1 (high) and AA (high)

DBRS has today confirmed the Commercial Paper and Long-Term Debt rating of the City of Calgary (the City or Calgary) at R-1 (high) and AA (high), respectively. Both trends remain Stable as Calgary continues to benefit from sizeable liquid resources that amounted to $1.5 billion at year-end 2009, sound fiscal management and a favourable economic outlook for the region. Nonetheless, the City’s credit profile continues to be pressured by service expansion and considerable capital investment, which is driving up operating and interest costs.

The City continued to post strong results in 2008 by achieving an operating surplus of $604 million, although after including substantial net capital expenditures, Calgary recorded a deficit of $73 million, its first post-capex deficit in 14 years. 2009 was the first year of the City’s new three-year operating budget which focused primarily on community safety, transportation and environmental initiatives and relied on a 5.3% increase in property taxes to achieve balance. As of the end of Q3 2009, the City recorded a favourable tax-supported variance of $8.5 million and expects that year-end results will continue to be favourable. In 2009, Calgary finalized its 2010 operating budget at $2.5 billion, up modestly over the prior year. The 2010 budget relies on a 4.79% property tax increase, an improvement over the initially budgeted 6.1% due to cost containment by management. Over the medium term, service expansion to deal with continued strong net population migration should perpetuate budget pressure, although Calgary’s strong economic outlook is expected to support healthy operating results.

Calgary’s tax-supported debt burden is expected to have finished 2009 at about $800 million or $760 per capita, a modest level compared to other DBRS-rated municipalities. Tax-supported debt is expected to continue to rise until hitting its peak of $1.1 billion in 2011 due to the five-year $6.5 billion capital plan that deals primarily with infrastructure expansion and maintenance needs. The capital plan is mostly financed through senior government grants, pay-as-you-go financing and self-supporting debt. Consequently, self-supporting debt will rise by roughly $1.6 billion, with a large portion of the debt due to bridge financing of the Municipal Sustainability Initiative (MSI) grant. This allows Calgary to borrow for capital investments over the near term and repay the debt as grant money is received. Overall, the higher debt burden should remain manageable for Calgary given the self-supporting nature of a majority of the debt, the City’s low-cost of financing through the Alberta Capital Financing Authority and the superior level of liquid reserves.

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.