DBRS Confirms City of Calgary at AA (high) and R-1 (high)

DBRS has confirmed the Commercial Paper and Long-Term Debt ratings of the City of Calgary (Calgary or the City) at R-1 (high) and AA (high), respectively. The trends are Stable, as the City remains on a solid footing with impressive operating results, a sizable liquidity position and a history of prudent fiscal management. The City’s robust economic growth has had a significant positive impact on operating revenues, but has also generated considerable infrastructure and service needs, which are expected to put notable though still manageable pressure on expenditures and debt levels in the medium term.

Rapid taxable assessment growth and shrewd fiscal discipline have led to 13 consecutive post-capex surpluses including one of $64 million in 2006. The City incurred record capital expenditures, but was still able to continue to modestly reduce tax-supported debt to $725 million or $731 per capita during the year with the help of higher government grants and considerable internal funding. Remarkable economic expansion is expected to continue to generate positive results in 2007, with the help of a 4.0% property tax increase. However, pressures on the budget are beginning to mount as inflation rises and the labour market grows tighter.

Both revenues and expenditures have been only moderately increased in the City’s three-year operating budget despite upwardly revised population growth. However, the updated 2007-2011 capital plan adds significant new spending, with a total of $4.1 billion in projects, of which $3 billion relates to tax-supported areas. As such, debt is expected to rise over the next several years to a nominal level higher than anticipated, although robust population growth projections should maintain debt below $1,000 per capita at the peak expected in 2008, still in line with the last DBRS review. Although the City endeavours to minimize use of tax-supported debt, increasing capital plans may create a need for external financing in the medium term. Overall, however, a robust economy, growing tax base and large funding contributions from the financially strong province of Alberta (rated AAA by DBRS) put Calgary in a solid position to face rising operating cost pressures and infrastructure needs.

Note:
All figures are in Canadian dollars unless otherwise noted.

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