Toronto, City of: Confirms at AA

The ratings of the City of Toronto (“Toronto” or the “City”) are confirmed as indicated above. The City improved its fiscal results modestly in 2002, ending the year with a $3 million DBRS-adjusted core surplus, the first since 1989. Supported by the good fiscal performance, DBRS-adjusted debt fell by 0.8% to $1.1 billion or $422 per capita in 2002.

While 2003 financial statements were not available at the time of publication, the City likely posted a modest core deficit. However, results are expected to have been better than budgeted, despite the effects of severe acute respiratory syndrome (SARS) and the blackout in August 2003. In response to these challenges, the City instituted cost-saving measures, primarily a hiring freeze and restraints on discretionary spending, to help improve results. Debt is likely to continue to increase moderately due to ongoing capital needs.

The City is projecting a balanced budget in 2004. However, the City will continue to rely on one-time revenue sources, primarily from the Province of Ontario, amounting to $138 million to achieve this result. In addition, the City raised residential property taxes by 3% and business property taxes by 1.5% to balance the budget. DBRS-adjusted debt is expected to rise moderately to help support capital requirements, primarily for the Toronto Transit Commission (TTC).

Although the City’s financial profile is expected to remain acceptable over the medium term, fiscal results will remain under pressure from significant infrastructure requirements, similar to other large Canadian municipalities. Over the next five years, $5 billion is to be spent on capital projects to help address these needs. Without new sources of funding, this could result in 45% growth of net tax-supported debt (DBRS-adjusted), which will take tax-supported debt per capita to about $590, substantively reducing the City’s room to manoeuvre within its rating. While senior governments have shown an interest in providing assistance to municipalities to help deal with their growing capital needs, they have not yet made any significant changes. Unless significant and sustainable new revenue sources are identified, the resulting expectation of a rising debt level over the years to come could result in a rating action.

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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