July 26, 2019 3:32 pm
Updated: July 26, 2019 3:33 pm

Agency downgrades Edmonton’s credit rating

The Muttart Conservatory in Edmonton, Alta., on Sept. 19, 2016.

Credit: Darin Wicentowich

The City of Edmonton has had its credit rating downgraded. Standard and Poor’s has dropped Edmonton from a “AA+” down to a “AA.”

While fiscal hawks on city council like Councillor Jon Dziadyk are concerned, Edmonton’s acting chief financial officer Stacey Padbury said the change does not impact council’s ability to borrow, or make things more expensive.

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“It really has no impact on our ability to borrow or the interest rates that we will have in borrowing,” Padbury told Global News. “We borrow (at a) fixed rate and are locked in for the term of the loan.”

That means unlike a traditional mortgage, the rates don’t change mid-way through the term.

“For us, that really means that we’re borrowing under the province’s credit rating, through their municipal authority.”

READ MORE: An Edmonton City Council clash is coming on debt as other money dries up

Standard & Poor’s rated the city’s financial management and liquidity at the strongest level possible, with a score of one on a five-point scale, the city said in a release.

However, Dzaidyk is quick to point out other troubling signs in the S & P report, like the four out of six on debt burden, with six being the weakest score.

“We should always respect the taxpayers’ dollar and we should not be spending unnecessarily,” he said.

He also referred back to an August 2018 update.

“A year ago, we were warned by S & P that we were at risk of having a downgrade, and that’s exactly what happened. So we didn’t follow their advice and they carried through with their assessment and they stayed consistent.

“What we have to do is take these warnings from financial institutions very seriously and curb our spending.”

The city has long had the view that borrowing for major projects spreads the cost out over its useful time.

“We are actually using debt to pay for the asset over the life that it’s being used,” Padbury said, “and it creates a generational equity, so we don’t look to pay for things off necessarily in large lump sums.”

READ MORE: City of Edmonton economist gives cautionary pre-budget warning to council, management

She also pointed out that paying off a loan early would bring a penalty.

The most recent city documents show Edmonton has a debt limit of $5.6 billion, and is just over half of it at $3 billion. As of the end of last year, the city was paying debt servicing costs of $288 million a year, less than a third of the nearly $1-billion limit they’d be allowed under provincial rules.

In house, the city has set guidelines lower than that. Council has agreed that the absolute most of tax-supported debt servicing costs that would come from your property taxes would be $362 million a year.

Council currently is at $219 million — or just over 60 per cent of the limit. And for all-in debt servicing costs, where other revenue like government grants or lease payments on city-owned buildings, the absolute max would be $621 million, and as of the end of last year the figure was $269 million or 43 per cent of what is allowed.

© 2019 Global News, a division of Corus Entertainment Inc.

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