DBRS Confirms the City of Calgary at AA & R-1 (middle)

DBRS is confirming the short-term and long-term ratings of the City of Calgary (the “City”) at R-1 (middle) and AA, respectively. The trends remain Stable. The City posted nine straight annual DBRS-adjusted core surpluses (after capital expenditures) totalling $1 billion over the 1994 to 2002 period, enabling unrestricted liquidity to more than double and tax-supported debt to drop by one-third. The implementation of a moderate increase to the property tax rate and certain user fees last year helped the City to record another core surplus – this time for a healthy $58 million. However, tax-supported debt climbed by 23% on the year to $608 million ($659 per capita) at December 31, 2003, fuelled by new borrowing mainly used to finance investment in transit and road infrastructure.

A balanced operating budget of $1.6 billion has been adopted for 2004 that includes a considerable increase to the property tax rate and user fees in order to preserve current service levels and build capacity for future population growth. Tax-supported debt is expected to rise moderately during 2004 due to additional borrowing for transit and roads.

The City’s financial prospects remain favourable, with further healthy core surpluses anticipated for at least the next few years. Without meaningful new revenue sources, however, natural revenue growth is expected to fall well short of the rise in capital spending requirements created by rapid population growth, possibly prompting the City to rely more heavily on tax and fee increases in order to ensure continued solid fiscal results. Similar to other large urban municipalities in Canada, the City is confronted with significant capital needs. To help meet these needs, the City plans to spend $2.8 billion between 2004 and 2008, pushing tax-supported debt up to a peak of about $760 per capita by 2006 (DBRS estimate). While this level of tax-supported indebtedness is high compared with other similarly rated municipalities, it nonetheless remains consistent with the current rating, given the City’s strong and growing taxable assessment base, robust liquidity position, and below-average tax burden. However, a material upward revision to the medium-term debt outlook bringing per capita debt close to the $800 mark would likely trigger 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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