THUNDER BAY — The international credit rating agency Standard and Poor's says the City of Thunder Bay is in pretty good financial shape.
For the fifth straight year, S & P Global Ratings is giving the city a credit rating of AA with a stable outlook.
The rating is based on current conditions and some assumptions about the future.
Over the next two years, S & P expects the city "will maintain overall sound financial results, generating modest after-capital surpluses on average, supported by prudent financial management practices."
This outlook is in spite of some near-term challenges and elevated capital spending.
S & P also expects the city will maintain a low debt burden and a robust liquidity position.
"We expect modest debt issuance in the next two years, which coupled with operating revenue growth and scheduled debt repayments, will result in a lower debt burden by 2023 while maintaining a healthy liquidity position," the company said in its review.
It noted that the COVID-19 pandemic has not weakened the city's operating balances to date, as tax revenues have continued to flow while management implemented actions to offset the reduction in transit and fee-based revenues as well as the increased costs of personal protective equipment.
S & P also pointed to strong pandemic-related provincial and federal support.
Although the company believes capital spending in the next several years will be high, it expects the city will generate modest after-capital surpluses in the next two years, and that efforts to increase ongoing internal contributions to fund capital spending will lead to a declining debt burden over time.
Standard and Poor's says that as the government centre for Northwestern Ontario, Thunder Bay's economy continues to be grounded by a large public-sector presence, high income levels and "a supportive institutional framework" that helps to mitigate broader challenges.
On the other hand, the city has a weaker demographic profile than other cities, characterized by low population growth and a large proportion of elderly residents which constrains the city's economy and could affect future revenue growth and expenditure needs.
In 2012 the city's S & P rating was only A+.
During the period 2013 to 2015, it was raised to AA- with a stable outlook before improving in 2016 to AA- with a positive outlook.
In 2017 it further improved to AA stable, and has maintained that rating ever since.
City Treasurer LInda Evans says a higher rating give the city access to lower interest rates for future debt financing requirements.
"The main reason we've been able to maintain it is, really, our positive budget results, and the fact that we have been maintaining low municipal debt burden and kept our excellent liquidity...For the last five years, on both the tax and rate side of the budget, we've been able to end the year with modest surplus balances."
Evans said this has enabled the city to responsibly increase its reserve fund balances.
She said AA stable is the highest rating the city has received historically.
Evans believes Thunder Bay compares well with cities of similar size, although she said some larger municipalities in the Greater Toronto Area have a AAA credit rating.
S & P cautioned that Thunder Bay's rating potentially could be lowered if weaker-than-expected budgetary performance and rising capital needs produced after-capital deficits consistently above five per cent of total revenues, and eroded liquidity to below the cost of servicing debt.
Evans said the city carefully monitors its ability to cover its debt and interest payments, and that because it stays below established thresholds, that is currently not a concern.
She said the credit rating reflects the city's focus on careful financial management.
"Certainly in the last year it's really indicated the city's ability to pivot and to implement cost containment measures that were so important during the pandemic."
