DBRS Confirms City of Edmonton at AA (high) & R-1 (high)

Dominion Bond Rating Service (“DBRS”) has confirmed the ratings of the City of Edmonton (the “City”) as indicated above. The trends remain Stable.

Driven by a moderate increase to the property tax rate and certain user fees, as well as the implementation of various savings strategies, the City posted its tenth straight DBRS-adjusted core surplus in 2003, at $24 million (after capital expenditures). Including one-time items, the surplus swelled to $303 million primarily due to a $283 million gain realized by City-owned EPCOR Utilities Inc. with the sale of its water heater business in late 2003. The City’s favourable fiscal balance was complemented by a 7% decline in net tax-supported debt to a modest $24 million or $34 per capita at December 31, 2003.

The City is expected to achieve another core surplus in 2004, supported by a larger-than-anticipated rise in revenue sources tied to population and economic growth, a moderate increase in the property tax rate, and continued careful management of growth-related spending pressures. However, the City borrowed $91 million earlier this year, of which $45 million is earmarked for tax-supported purposes. As a result, net tax-supported debt will rise for the first time in over a decade to $59 million or $84 per capita by year-end.

DBRS expects the City to maintain a strong financial profile over the medium term, although growth-related service delivery pressures, salary adjustments, and a lack of revenue sources strongly linked to economic growth will likely continue to pose budgetary challenges.

As with all urban municipalities rated by DBRS, the City must manage significant costs related to the expansion and maintenance of its infrastructure base. To help fund these costs, the City plans to borrow up to $210 million in tax-supported debt over four years, pushing net tax-supported debt up to a projected $240 million or $310 per capita by 2008 (consistent with the projection in the March 1, 2004, DBRS report). DBRS believes the higher debt burden will remain appropriate for the current rating, given:
(1) fiscal results are expected to remain positive despite the higher debt charges;
(2) significant flexibility is afforded by a relatively low property tax and user fee burden ($1,603 per capita in 2003); and
(3) a sizeable liquidity backstop exists ($1.1 billion of investment holdings in 2003).

In addition, senior governments are planning to deliver large capital funding injections over the next few years, which could alleviate unfunded capital needs, modestly reduce the current tax-supported debt projection and, in turn, provide further support to its credit profile. Notably, the Province of Alberta is looking to invest $3 billion over several years (up to $1 billion for Edmonton), while the Federal government is likely to transfer up to 5¢ per-litre in federal gas tax revenues over five years ($5 billion shared among Canadian municipalities).

Note:
Long-Term Debt includes debt issued on behalf on EPCOR Utilities Inc. and Edmonton Northlands.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

Ratings

Back to top