DBRS Confirms the City of Calgary at AA (high) and R-1 (high) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Long-Term Debt ratings of the City of Calgary (Calgary or the City) at AA (high) and its Commercial Paper rating at R-1 (high). All trends are Stable. The ratings are supported by the City’s relatively low, albeit rising, debt burden, its robust liquidity and its responsible fiscal management. The economy continues to be susceptible to volatility in global energy prices and hindered by transportation constraints, although the population is growing, and unemployment is declining.

Calgary continued reporting positive operating results in 2018, recording a DBRS-adjusted post-capex surplus of $175 million. DBRS adjusts reported results to remove amortization expense and to include net capex. The adjusted result was lower than the restated surplus of $206 million in 2017 but marks the fifth consecutive year of post-capex surpluses and continues to compare favourably with the City’s municipal peers.

The 2019 budget plan — One Calgary — marks a shift to service-based budgeting from the departmental basis used previously; however, the citizen priorities are consistent with those contained in the prior budget. This plan covers the City’s 2019–2022 period, and the fiscal outlook remains favourable with positive operating results expected throughout the period. Over the medium-term plan, gross expenditures (net of recoveries) are projected to rise by an average of 3.3% over the forecast horizon and will be matched by a similar increase in revenues. This assumes average annual property tax rate increases of approximately 3.1%.

In their campaign platform, the United Conservative Party committed to maintaining funding provided to municipalities for 2019–20 and the new City Charters for Calgary and Edmonton. The new government has also committed to predictable long-term infrastructure funding and to maintain the previous government’s key infrastructure commitments. However, negotiations on a new fiscal arrangement between the cities and the Provincial government add uncertainty to the medium-term outlook.

DBRS-adjusted tax-supported debt declined modestly in 2018 to $737 per capita, down from $808 per capita the previous year. As a share of total taxable assessment, tax-supported debt stood at 0.3%, low in comparison with rated peers. The City’s tax-supported debt burden is expected to rise steadily as financing needs ramp up to support the Green Line LRT project. DBRS projects that tax-supported debt per capita could reach $1,375 by 2023, or 0.7% of taxable assessment. These levels remain consistent with the assigned ratings.

RATING DRIVERS
A positive rating action is unlikely over the medium term given the already high ratings and the City’s exposure to the provincial energy sector. While unlikely, a downgrade could come from a weakening in fiscal management, producing large post-capex deficits and a significant deterioration in the City’s balance sheet.

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

The principal methodologies are Rating Canadian Municipal Governments and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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