The City of Greater Sudbury’s long-standing credit rating of AA has been upgraded to AA+ with a “stable outcome” from Standard and Poor Global Ratings.
“I am proud that we have earned an improved credit rating of AA+,” Mayor Brian Bigger said in a media release issued by the city.
“This is reflective of the commitment made by our city council to implement forward-thinking policies that make the best of our resources in a way that allows us to be resilient, strategic and deliver positive results for our residents.”
The credit rating is an assessment of the municipality’s financial health based on factors such as historical financial performance, policies, economic growth and long-term plans, according to the media release.
“It provides a signal to lenders of the city’s capacity to meet its financial obligations, and influences the interest rate paid on any future debt the city takes on to fund investments in new or replacement assets that support growth and economic activity throughout the municipality.”
The upgraded credit rating will come as a surprise to critics of the municipality, who have frequented social media in recent months to point out the city’s ballooning debt, which is expected to hit $355 million this year, and an infrastructure deficit wherein an additional $100 million would need to be spent annually to maintain city assets at their current state. The city’s reserve funds have also been criticized for lagging far behind the average for Ontario municipalities.
The city’s property tax rates are middle of the road in relation to Ontario municipalities, but rank on the low end among municipalities with populations greater than 100,000.
Greater Sudbury is one of 21 municipalities that received an upward revision to its credit rating, whose operating environment S&P Global Ratings describes as “extremely predictable and supportive.”
The ability of municipalities to maintain financial resiliency over time, including during a significant stress scenario, such as the COVID-19 pandemic, also plays into their rankings.
“Not only did municipalities – including Greater Sudbury – scale back services and cut expenditures to mitigate the financial impact of the pandemic, but senior levels of government also provided extraordinary support to cities that helped alleviate financial pressures,” according to the city’s media release.
“This is clearly good news and a vote of confidence from a knowledgeable source in the city’s financial policies and plans,” Ward 7 Coun. Mike Jakubo said in the media release. Jakubo also serves as chair of the city’s finance and administration committee.
“City council and staff work well together to follow a long range financial plan, with strategies for asset renewal and for managing daily service demands that remain affordable for our community. The pandemic’s challenges have changed over the last two years, but they have not gone away. I am confident we will continue to successfully work with our community partners to navigate the inflationary pressures the pandemic introduced, and that our community’s strong economic performance will continue.”
S&P Global will complete their annual review process in August of this year, with their full 2022 credit rating report expected in the fall. Past reports can be found on the city’s website by clicking here.
The latest report, issued on Sept. 22, 2021, notes that the next two years were expected to remain stable in Greater Sudbury, where “a robust mining sector will help the economy recover from the near-term impacts of the pandemic. We also expect that the city will continue to execute its large capital program, resulting in modest after-capital deficits, but that it will continue to generate healthy operating surpluses.”
“Although the city will continue to face operating challenges, its effective cost containment efforts will help ensure robust budgetary performance throughout the forecast horizon. Its ambitious capital plan will necessitate some further borrowing in the next two years, but we believe that the debt burden will be very manageable, and that liquidity will remain very strong.”
The issuer anticipated seeing the city’s debt burden peak this year at $327 million (it has already hit approximately $355 million), but that interest costs would remain “very manageable.”
The city has a debt policy wherein staff only recommend debt in cases where the cost of taking on debt is less than the cost of saving up money in a reserve fund and undertaking the project years down the road. This policy was adopted as the city shifted from the pay-as-you-go approach to funding capital projects a few years ago toward debt financing.
"I think there's an opportunity for us to make the investments that we're looking at and still manage the money of the citizens well,” Bigger explained at the time. “We wouldn't overly burden us with debt, but really seize the opportunities that we have at this point and time with the low interest rates."
Municipal debt was $18.98 million in 2014, with its first big jump taking place the following year when $46.8 million was financed for a biosolids facility and $14 million was financed for a fleet-transit garage.
An additional $200 million in debt was approved in 2019 and secured the following year for a handful of major projects, including the Kingsway Entertainment District, The Junction and the four-laning of Municipal Road 35. Earlier this year, the city secured $103 million in debt for infrastructure projects. The $200 million was borrowed at an interest rate of 2.416 per cent, while the $103-million in debt came in with an interest rate of 3.457 per cent.
