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

Dominion Bond Rating Service (“DBRS”) has confirmed the short-term and long-term ratings of the City of Winnipeg (the “City”) at R-1 (middle) and AA (low), respectively. The trends remain Stable, reflecting the City’s record of positive fiscal performances, solid liquidity position, and well-diversified economy.

While financial results for 2004 were not available at the time of this report, tight expenditure control is expected to have compensated for the impact of a property tax freeze, resulting in the City’s eighth straight DBRS-adjusted core surplus (after capital expenditures). Tax-supported debt (net of sinking funds) remained fairly steady in 2004, at an estimated Cdn$390 million, or Cdn$600 per capita, as principal repayments offset Cdn$37 million in new tax-supported borrowing needed to refinance debt that matured in 2003 and was temporarily financed by internal cash flows.

Although the City has yet to pass this year’s operating budget, it is considering holding the line on property tax rates while reducing the business tax rate for the downtown area. In keeping with the approach used in prior years, the City will likely deliver this tax relief and maintain its positive fiscal balance by enacting further operating efficiencies or reducing unessential service levels. Supported by principal repayments, net tax-supported debt should moderately decline this year.

DBRS expects the City to continue posting solid fiscal results over the next several years, although increases to user fees or the residential property tax rate may be required to fund capital spending and wage pressures. The City does not expect to approve any new borrowing for tax-supported capital purposes going forward, causing principal repayments to gradually reduce net tax-supported debt. However, DBRS expects it to be difficult for the City to avoid the use of new tax-supported debt while meeting its sizeable capital spending requirements.

Similar to most other DBRS-rated municipalities, the City is faced with a large gap between capital needs and available funding, estimated at Cdn$1.8 billion over the next decade. In recognition of mounting capital pressures at the municipal level, the federal government plans to transfer 5¢ per litre of fuel tax revenues to municipalities over the next several years. The City estimates its share of this funding to be Cdn$39 million per year once fully in place, which, although significant, would not fully alleviate its capital needs. As a result, the City will likely have to raise debt, property taxes, or user fees at some point to address unfunded capital requirements.

DBRS notes that the considerable improvement observed in the City’s financial profile in recent years provides room to manoeuvre within its current rating.

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.

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