THUNDER BAY – Some positive news on the economic front for the City of Thunder Bay. Standard & Poor’s has raised the City’s credit rating to ‘AA-’ from ‘A+’ on the basis of sustained and strong financial performance.
“The upgrade reflects our view of Thunder Bay’s sustained strong financial performance, as its robust liquidity and healthy budgetary performance illustrate,” said Standard & Poor’s credit analyst Bhavini Patel.
Thunder Bay Credit Rating Upgraded
“The ratings on Thunder Bay reflect Standard & Poor’s assessment of the city’s robust liquidity, healthy budgetary performance, and moderate debt. We believe that somewhat mitigating these strengths are the city’s economy, which has limited growth prospects, and somewhat limited budgetary flexibility”.
Standard & Poor’s expects that free cash and liquid assets will remain strong and relatively stable in the next two years. At fiscal year-end 2012 (Dec. 31), free cash and liquid assets covered slightly less than 3x coverage of 12 months of debt service and stood at about C$84 million (Standard & Poor’s-adjusted). We believe that the city’s credit quality continues to benefit from liquidity levels that are very high and comparable with those of more highly rated domestic and international peers.
“This rating reflects the positive direction of our City,” said Carol Pollard, City Treasurer & General Manager – Finance & Corporate Service. “By employing prudent financial planning and adhering to financial principles the City is building a healthy and sustainable community.”
A city’s credit rating is used by investors and creditors to measure a municipality’s ability to meet its financial obligations.This is good news for residents, as a good rating allows a municipality to borrow money at competitive interest rates and pass on the lower costs to taxpayers.
Standard & Poors report, “In our opinion, with an increased focus on addressing its infrastructure gap, Thunder Bay’s after-capital budgetary performance will remain near balance in the next two years. Nevertheless, we expect that the city will continue to produce a strong operating surplus of greater than 5% of operating revenue. In 2012, after incorporating tbaytel, Thunder Bay’s wholly owned telephone utility, the city’s 2012 consolidated operating surplus was about 8.7% of operating revenues, a moderate decline from 9.6% the previous year”.
“Excluding tbaytel’s operations but incorporating its dividend to the city, Thunder Bay’s operating performance was about 8.6%, slightly below the three-year average of 9.7%, which according our statistics is a little below-average compared with that of domestic and global rated peers. The city’s overall budgetary position, which includes capital revenues and expenditures, remained near-balanced year-over-year. Thunder Bay’s after-capital spending surplus at fiscal year-end 2012 represented about 1.4% of total revenues, excluding tbaytel’s operations, a modest improvement compared with the 1.9% deficit recorded in 2011”.
In its June 2013 rationale, Standard & Poor’s noted the City’s robust liquidity, healthy budgetary performance, and moderate debt. The stable outlook reflects an expectation that the City will continue to produce healthy operating surpluses over the next two years.
Another factor in the credit rating upgrade was the fact that 20 per cent of the city’s workforce is employed by the public sector, giving the economy a very stable base. In its rationale, Standard & Poor’s also cited successful economic diversification into knowledge-based sectors including biomedicine, research, and health care.
Mayor Hobbs comments that one of his goals is keeping his door open and remaining focused on small business.
“In the past three years we have reduced business taxes by 17%,” shares the Mayor. “We issued record numbers of building permits last year, and are on track to match that number this year”.
“I go to every opening of every new business in Thunder Bay and present a scroll and advise owners to contact me if they have any issues. So far not much uptake. I was at Lowrey’s yesterday and asked Shawn Christie if he had any issues with the City on opening his new facility. He advised me it was a seamless process”.
The stability offered by large numbers of government jobs, 20% of the city’s employment puts the city at risk when governments are cutting back to pay down debt. Thunder Bay’s small and medium size business core and the growing need for new business is important for the city’s continued growth.
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