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

DBRS has today confirmed the Commercial Paper and Long-Term Debt ratings of the City of Calgary (the City or Calgary) at R-1 (high) and AA (high), respectively. The rating confirmations reflect Calgary’s solid financial position, as evidenced by its sustained level of significant liquid resources, sound fiscal management and an upwardly trending economy. Notwithstanding Calgary’s current financial stability, the credit profile continues to be tempered by service expansion pressures and increasingly significant infrastructure expenditures, which are expected to continue to drive up operating expenses and debt levels over the medium term.

The City’s fiscal discipline has led to another operating surplus in 2010 of $388 million. However, after including net capital expenditures, Calgary recorded a notable deficit of $262 million, its third annual consecutive post-capex deficit. 2010 marked the second year of the three-year operating budget, which focused primarily on community safety, transportation and environmental initiatives and relied on a 4.79% increase in property taxes. As a result of continued net population migration, and with a number of labour contracts currently under negotiation, Calgary will need to persist in managing both expansion and inflationary pressures. However, Calgary’s positive economic outlook and a 10.4% property tax increase (offset by a notable reduction in the provincial property tax rate resulting in an overall property tax rate increase of 4.4%) will promote revenue growth that is expected to hedge the growth in expenditures and assist in maintaining a balanced budget.

The City approved a $7.2 billion capital plan for the 2011 to 2015 period that will address a multi-billion dollar infrastructure deficit. The current capital plan extends the previous $6.5 billion plan by an additional year, and highlights the coming challenge to accommodate expansion needs while managing debt levels. Calgary’s tax-supported debt burden finished 2010 at about $909 million or $848 per capita, up 9% year-over-year, and is expected to reach $1 billion by 2013. Self-supporting debt is expected to continue to rise until hitting its peak of $3.9 billion by 2014, an increase of roughly $1.2 billion from its current level.

The capital plan will primarily be financed by senior government grants, pay-as-you-go financing and self-supporting debt, including $825 million to finance utility capital expenditures, and $550 million to bridge grants approved through the Municipal Sustainability Initiative (MSI). Given the self-supporting nature of the majority of the debt, the increased debt burden should still remain manageable. Furthermore, Calgary continues to benefit from low-cost financing from the Alberta Capital Financing Authority and strong liquid reserves which are in excess of future incremental borrowing requirements, providing resilience to the credit profile.

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 rating did not include issuer participation and is based solely on publicly available information.