Calgary, City of: Confirms at AA & R-1 (middle)

Paul Judson; Eric Beauchemin, CFA / 416-593-5577 ext.2261, ext.2252 / pjudson@dbrs.com

 

DBRS is confirming the City of Calgary’s (the “City”) ratings as indicated above, with continuing Stable trends. Financial results weakened slightly in 2002, but still remained strong.  DBRS-adjusted operating revenues contracted moderately due to a notable reduction in energy-linked revenues arising from lower natural gas and electricity prices.  Reflecting the challenge faced on the revenue side, spending increased modestly, primarily to cover additional wage, salary and benefit expenditures.  A new and less restrictive borrowing policy adopted by the City in 2002 allowed net tax-supported debt to grow by 8% over the 2001 level, the first increase since 1985.

 

The financial outlook is positive for 2003 and beyond, although property tax increases exceeding the rate of inflation will likely be required in order to maintain a balanced budget.  Over the next five-years, the City plans to spend $1.5 billion on tax-supported capital projects, with a focus on rehabilitating and developing its transportation infrastructure.  Increased use of debt financing to support this spending plan is projected to drive tax-supported debt up 20% by 2004.  While the City expects debt to trend downward thereafter, it is our belief that tax-supported debt will follow a gradual upward trajectory over the long term, as increased reliance on debt financing will likely be required in order to meet growing infrastructure needs.

 

In addition to significant capital requirements, the City is confronted with several other challenges going forward.  First, a relatively heavy tax-supported debt burden restricts financial flexibility.  Second, a limited number of revenue sources directly linked to economic activity impairs the City’s ability to service rapid population growth.  Finally, the local economy’s relatively high dependence on the energy sector could dampen economic and fiscal results in the event of a notable and protracted slump in energy prices.

 

 

Dominion Bond Rating Service Limited (DBRS) has published a full report that provides additional analytical detail.  To see this report, please click on http://www.dbrs.com/web/sentry?COMP=2900&DocId=122840.  If you do not have access to this document, please contact us at info@dbrs.com.