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

DBRS is confirming the ratings of the City of Winnipeg (“Winnipeg” or the “City”) at R-1 (middle) and AA (low), with continuing Stable trends. Since 1997, the City has posted a string of solid DBRS-adjusted core surpluses (after capital expenditures), which have translated into a marked improvement in liquidity and a notable reduction in net tax-supported debt. For 2002, the City recorded a $51 million core surplus, rising to $279 million after one-time items due to a gain of $227 million realized on the sale of Winnipeg Hydro to Manitoba Hydro, on September 3, 2002. Helped by strong cash flows that enabled the City to postpone the refinancing of $87 million in tax-supported debt, net tax-supported debt fell by 16% to $385 million as at December 31, 2002, or $610 per capita.

While 2003 fiscal results are not yet available, continued prudent spending practices are expected to have offset the impact of a freeze on property tax rates, which likely led to another core surplus. However, the refinancing of debt that matured in recent years is expected to have moderately increased total net tax-supported debt.

The City has adopted a balanced budget this year while holding the line on property and business taxes, the seventh consecutive year that taxes have been frozen or reduced. Net tax-supported debt is projected to remain steady, with principal repayments roughly offsetting the refinancing of $37 million in tax-supported debt that matured in 2003.

The City’s financial profile is expected to remain sound over the medium term. However, similar to other urban municipalities in Canada, the City faces a substantial gap between its tax-supported capital needs and available funding, estimated at $110 million per year over the next decade. In response, the City has announced a plan (the “New Deal”) that aims to grow the revenues necessary to close this gap through decreasing its currently heavy dependence on slow-growing property tax revenues and introducing a variety of new revenue sources that grow in tandem with expenditure requirements. As such, the New Deal, if implemented, would help address capital needs, improve revenue growth, and encourage more efficient use of city services, but would also raise the relatively high fiscal burden already borne by the City’s residents. Implementation is expected to be a lengthy process, as major components of the New Deal require approval from senior governments. Without the New Deal, net tax-supported debt will likely have to increase notably in order to meet capital requirements. However, the considerable improvement recorded in the City’s financial position in recent years provides an ample amount of manoeuvrability within its the current rating.

Dominion Bond Rating Service (DBRS) will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, please contact us at: info@dbrs.com.

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