City of Toronto responds to credit rating downgrade by Dominion Bond Rating Service|
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(The City sent this news release to the media last night, April 2.)
Finance Department --- The Dominion Bond Rating Service (DBRS) today adjusted
the City of Toronto's long term credit rating from AA (high) with a stable
outlook to AA (stable). This places the City's rating at a level that is
consistent with the levels assigned by Moody's Investors Services (Aa2) and
Standard and Poors (AA). Notwithstanding this downgrade, Toronto's rating
remains among the highest of comparably sized or larger North American cities.
Chief Administrative Officer Shirley Hoy said, "The downgrade again points to
what Council has been saying all along -- that the federal and provincial
governments must immediately commit to providing Toronto with the financial
tools we need to sustain the City over the long term."
However, she added, "I am pleased that DBRS has recognized that Toronto has a
good record of fiscal management and that improvements to the City's financial
planning, monitoring and reporting are seen as positive factors."
In adjusting the credit rating, DBRS cited projected increases in the
tax-supported debt burden over the foreseeable future, despite the commencement
in the City's 2002 capital expenditure forecasts of long term federal and
provincial funding for public transit. They also noted that this rising debt
will likely have to be serviced by increases in residential property taxes,
given the lack of potential new sources of revenue (largely due to legislative
limitations), low assessment growth and provincial legislation that restricts
property tax increases in Toronto to the residential sector only (Bill 140).
Further, DBRS considered the challenges of managing the City's spending
requirements due to the economic sensitivity of some of its programs (for
example, social assistance and social housing). From a positive standpoint,
they took into consideration that the ownership of Toronto Hydro provides a
stable source of capital funding and that improvements have been made to the
City's financial planning, monitoring and reporting.
Joseph Pennachetti, the City's Chief Financial Officer and Treasurer, said, "An
AA rating is considered to be very strong by the capital markets and this
change to our credit rating is not expected to materially increase our cost of
long term borrowing to support our capital program. We will review DBRS's
rating in detail to identify further long term financial plans to reduce debt
charges and increase pay as you go financing."
The City issues debt only for major capital projects, the vast majority of
which support investments in the ongoing maintenance of facilities and
structures. This includes, for example, subway car replacements, major road and
bridge reconstruction and repairs to facilities such as police, ambulance and
fire stations, homes for the aged and community centres.