Edmonton’s credit rating downgraded to AA

The City of Edmonton’s credit rating has dropped for the first time in 15 years.

Credit rating agency Standard & Poor’s has assigned the city a credit score of AA for 2019, according to a Thursday report from the firm. Although the third-highest possible rating, the AA score is a downgrade from the city’s previous AA+ rating, where it had sat since November 2004, according to information provided by a city spokeswoman on Friday.

The downgrade was as a result of the city’s growing debt burden to fund more infrastructure spending, S&P analysts said, pointing to the Valley Line LRT extension to west Edmonton. With the east leg of the LRT line still under construction, Edmonton is increasing its debt load compared to operating revenues, the report said.

The city’s 2019 $4.8-billion capital budget includes upgrading Yellowhead Trail to a freeway, the Valley Line LRT, work on the Coronation recreation centre, Terwillegar Drive improvements, and more.

S&P expects the city’s debt to rise to $5 billion in 2021 from $3.6 billion in 2018, it said. Analysts also said they could consider raising Edmonton’s credit rating if its economy were less reliant on the energy sector.

The City of Calgary, meanwhile, maintained its AA+ credit rating, according to an S&P report released Friday.

COUNCILLOR CONCERNED ABOUT DOWNGRADE

Edmonton’s credit rating does not affect the city’s borrowing rates, said Stacey Padbury, the city’s acting chief financial officer, in a Friday email. The city borrows through the Alberta Capital Finance Authority using the Alberta’ government’s rates. Interest rates are fixed for the terms of the loans, she said.

S&P did warn Edmonton last year it could face a credit rating downgrade for boosting borrowing.

North-side city Coun. Jon Dziadyk said the credit rating does influence how outsiders see the risk of investing in Edmonton.

“It’s a sign that we’re going in the wrong direction,” he said of the downgrade.

Dziadyk said he has pushed back against adding “bells and whistles” to city infrastructure projects. For instance, he voted against approval of a new Lewis Farms recreation complex and library in west Edmonton, saying high diving platforms and extra pool space were a luxury, not a necessity.

He has also questioned a city policy to spend one per cent on public artwork for every $100 million invested in a city facility.

“I think there’s plenty of opportunity to deliver great facilities for less money,” he said Friday.

He’s concerned driving up city debt will see more property tax dollars directed to interest payments.

Padbury said in a Friday news release the city’s debt level is not related to its financial stability.

“We don’t run a deficit and while the city’s capital plan has had an impact on its credit rating, we must continue to make these critical investments in Edmonton’s future,” she said.

The agency also rated the city’s financial management and liquidity the strongest on a five-point scale, the city news release said. Economic growth in Edmonton is likely to increase tax revenue and nudge the credit rating back up during the next two years.

Although governments often receive credit ratings from multiple agencies, the City of Edmonton only obtains ratings from S&P.