DBRS Confirms the City of Winnipeg at AA (low)
Sub-Sovereign GovernmentsDBRS has today confirmed the Long-Term Debt rating of the City of Winnipeg (Winnipeg or the City) at AA (low) with a Stable trend. The credit profile of the City remains in a sound position with sizeable liquidity, solid fiscal management and a healthy operating surplus before capital expenditures. Moreover, the City’s diverse economy is set to grow at a steady rate over the medium-term, aided by a rebound in the manufacturing sector. Conversely, Winnipeg still faces a considerable infrastructure gap and a relatively high, though declining, tax-supported debt as a proportion of taxable assessment which continue to weigh on the City’s credit profile.
In 2006, Winnipeg grew its operating surplus before capital expenditures to $203 million, supported by continued cost containment and moderate revenue growth. As a part of its large capital plan, the City ramped up capital expenditures in the past year bringing the overall fiscal balance to a $17 million deficit. Modest surpluses before capital expenditures are expected for 2007 and the medium-term despite a tight operating environment. This is due partly to a policy of tax freezes or reductions now in its tenth consecutive year, which is exceptional among Canadian municipalities and leaves capacity for tax revenue increases. Additionally, the City is currently in the process of renegotiating the majority of its labour contracts which poses a modest risk to planned expenditures.
Helped by Winnipeg’s commitment to pay-as-you-go capital financing, the level of tax-supported debt has been declining steadily since the late nineties, although still remains high relative to the City’s tax base. DBRS-adjusted tax-supported debt dropped 4.8% to $317 million in 2006. At 1.0% of taxable assessment, this remains the second highest level among DBRS-rated Canadian municipalities.
Over the next five years, the City’s large capital plan should help address the significant infrastructure gap, although this may put pressure on leverage. Nonetheless, the DBRS adjusted tax-supported debt level should remain well within the AA (low) rating based on current financing plans. Greater clarity with respect to long-term capital needs will be provided when the City updates its ten-year capital spending and revenue forecasts in the next year. DBRS notes that an affordable plan could have positive implications for the rating.
Note:
All figures are in Canadian dollars unless otherwise noted.