DBRS Confirms the City of Montréal at A (high)

DBRS has today confirmed the Long-Term Debt rating of the City of Montréal (Montréal or the City) at A (high) with a Stable trend. The City maintains sound credit fundamentals, buttressed by prudent financial management; an increasing focus on cost containment, as highlighted by the continuation of the job elimination program in the last budget; and the ability to levy taxes over a large and diverse economy. However, compared with other large Canadian municipalities, Montréal remains constrained by its heavy tax-supported debt burden.

The City continued recording healthy results in 2007, with an operating surplus of $591 million, driven by fiscal prudence, including staff reductions and a city-wide hiring freeze. Montréal’s post-capex surplus was a solid $227 million, a result of higher-than-expected funding and lower capital spending. Net tax-supported debt (DBRS-adjusted), while high, changed little year over year and amounted to $3.3 billion, or $1,761 per capita, at year-end 2007, with net interest charges consuming a manageable 6.6% of operating revenue.

The City achieved sound real GDP growth of 2.5% in 2007, relying on a robust service sector, where roughly 97,000 jobs were created (census metropolitan area, CMA). In 2008, Montréal’s economy has been constrained by its soft manufacturing sector and continued lack of population growth, leading to forecast real GDP growth of 1.7%.

The City maintained a balanced operating budget in 2008, leaving the general tax level unchanged for a third consecutive year and keeping a tight control on spending. Looking ahead, the operating budget is expected to remain balanced. However, the sustained spending pressure from the extensive capital plan for transit, water and roadways will lead to a tight budgeting environment and modest upward pressure on debt, although partial relief is expected from the federal Gas Tax Fund and the incremental water levy increases. In addition, the City’s increasing focus on cost containment, expected to produce a total of $300 million in recurring savings from 2007 to 2009, should contribute to achieving sound performance in coming years.

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

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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