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

DBRS has today confirmed the Long-Term Debt and Commercial Paper ratings of the City of Calgary (the City) at AA (high) and R-1 (high), respectively. The trends remain Stable, reflecting the City’s solid financial position, ample level of liquid resources, sound fiscal management and an upwardly trending economy. However, financial strength continues to be slowly tempered by service expansion pressures and ongoing infrastructure spending, which will drive up operating expenses and debt levels for the foreseeable future.

Solid fiscal discipline led to another operating surplus in 2011 of $438.4 million that was strongly supported by residential and non-residential property tax increases. However, after infrastructure spending, Calgary recorded a significant deficit of $258.7 million. This marked the fourth consecutive post-capex deficit and represents a trend that will likely continue over the medium term. A financial plan for the upcoming three-year period has been approved by City Council and calls for balanced operating budgets supported by further tax rate increases. The 2012 portion of the budget relies on a 5.1% residential tax rate increase and an 8.9% non-residential tax rate increase. Above-average population migration and labour costs will require continued tight management of expansion and inflationary pressures

The City contemplates $5.7 billion in capital spending over the next five years, a majority of which has already been approved, and primarily represents expenditures to expand transportation networks and utility infrastructure to support population growth. The size of the current capital plan highlights the need for incremental borrowing of $700 million by 2013; however, most of the additional debt requirements will be of a self-supporting nature. DBRS-adjusted tax-supported debt, which totalled $893.1 million in 2011, is planned to decline marginally in 2012 and then peak at around $950 million by 2013. Given the self-supported nature of the majority of the upcoming new debt, the debt burden should remain manageable. Furthermore, Calgary maintains access to low-cost financing from the Alberta Capital Financing Authority and its strong liquid reserves are in excess of future incremental borrowing requirements, providing resilience to the credit profile.

Notes:
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.