The City of Greater Sudbury reaffirmed its AA credit rating, which Standards & Poor’s Global Ratings has awarded the municipality every year since 2018.
“I’m proud to see that we are consistently presented with a AA credit rating,” Mayor Brian Bigger said in a press release issued Oct. 1.
“This is an important indication that we are on the right track, making the best use of our resources, and are well-positioned to make sound investments that contribute to the future of our community and to economic growth.”
The rating serves as an assessment of the municipality’s financial health based on historic financial performance, policies, economic growth and long-term plans.
The badge of honour isn’t just symbolic and helps influence the interest rate paid on any debt the city takes on, such as the $200-million loan the city decided to take on in 2019 to fund major projects such as the Kingsway Entertainment District, The Junction and Municipal Road 35.
At the time, it was reported that the low interest rate the city was able to secure was a key factor in city council’s decision to take out the loan early. When the interest paid is paired against the interest earned while the money is in a holding account it was estimated the loan would cost the city approximately $60,000 per year.
Earlier this week, in response to an inquiry from Sudbury.com regarding debt, finance chair and Ward 7 Coun. Mike Jakubo said he understands the general aversion to debt, “but there are enough financially versed individuals around the table to know when it is a good idea and when it is not, and we have only made smart debt decisions thus far.”
“Now is a good time to take on debt because we can get more work done sooner and at historically low interest rates which we have the ability to lock in for 25-30 years,” he said.
“If we did this work on a year-to-year, pay-as-you-go basis as was done in the past, council would never be able to get ahead on the asset revitalization required to keep our assets in good usable condition.”
According to the city’s 2020 consolidated financial statement, municipal long-term liabilities at the end of the year totalled $261.8 million. In addition to debt, this included $269,000 in capital lease obligations and $5.5 million in accrued financial obligations to organizations such as Health Sciences North and Place des Arts.
This is a far cry from the $70.26 million in long-term liabilities recorded at the end of 2019, with the borrowing of $200 million accounted for the following year.
Approximately $2.64 million was spent on interest in 2019, while $6.3 million was spent in 2020.
The interest paid in 2020 is partially offset by the interest earned on a portion of the $200-million loan, of which approximately $170,000 remained available for investment at the end of the year.
Despite this growing debt load, it remains below the council-imposed threshold that debt repayments do not exceed 10 per cent of the city’s own-source revenue. This threshold is more conservative than the maximum 25-per-cent limit established by the province.
The S&P report notes that Sudbury’s economy appears poised to “begin to recover over the next two years as vaccination rates rise and pandemic-related restrictions ease.”
Sudbury’s increasingly diversified economy will help in this post-pandemic recovery, although they also note the area’s continued reliance on the highly volatile resource sector, and nickel in particular, restricts their predictions.
The S&P report notes that the City of Sudbury appears to have strong financial practices and, “like other Canadian municipalities, benefits from a very predictable and well-balanced local and regional government framework that has demonstrated a high degree of institutional stability.
The full S&P report can be found by clicking here.
Tyler Clarke covers city hall and political affairs for Sudbury.com.