Province hit with another credit rating downgrade
DBRS is third group to drop province’s rating during NDP government’s tenure
An improving Alberta economy and a pledge to cut labour costs in the public sector weren’t enough to head off another credit downgrade for the NDP government.
Rating agency DBRS Ltd. announced Wednesday that it had downgraded Alberta’s rating from AA (high) to AA, while maintaining a negative outlook for the province.
The move follows Finance Minister Joe Ceci’s Tuesday release of the province’s second-quarter fiscal update, which sees the deficit for 2017-18 projected at $10.3 billion — a slight improvement from the spring budget’s estimated $10.4 billion.
Ceci said Alberta had emerged with 4.0 per cent growth from two years of recession and the government now intended to reduce spending, in part through a public-sector hiring freeze and a push for no raises in negotiations with unions.
But for DBRS — which warned in August of the likelihood of a further credit downgrade — Ceci’s pledges don’t address the fundamental issue affecting the province’s finances — “high levels of per capita spending and the lowest tax burden in the country.”
“We were hoping to see more deliberate efforts to address the deficit ... and it doesn’t seem like that’s forthcoming,” Paul LeBane, an assistant vice-president for public finance with DBRS, said in an interview.
“Despite all this positive economic news, it’s not filtering into the budget or the fiscal outlook.”
LeBane said that while Ceci promised a hiring freeze, he almost immediately undermined the impact of the pledge by vowing to maintain public services.
He said the NDP government is continuing Alberta’s long-standing reliance on resource revenues, while high levels of borrowing are driving up the provincial debt, expected to top $42 billion by the end of this year.
DBRS is one of three rating agencies, along with S&P Global Ratings and Moody’s, that have downgraded Alberta’s formerly top-notch credit rating during the NDP government’s tenure, the first two years of which were marked by recession. Lower ratings make it more expensive for the government to borrow.
The most recent downgrade came from S&P in May, as it lowered Alberta’s rating two notches, from AA to A+.
In question period Wednesday, an undaunted Premier Rachel Notley said to opposition jeers that Alberta retains the secondhighest credit rating in the country despite the downgrade.
“It also comes on the heels of the biggest recession seen since the 1930s. Alberta, notwithstanding that, is recovering,” she said.
“A couple of these credit agencies, what they actually want us to do is raise taxes by $3 (billion) to $4 billion or cut spending by $3 (billion) to $4 billion ... neither of those things are going to help us.”
The government insists it is “carefully tightening our belts to balance the budget while protecting health care and education.”
But Alberta Party interim leader Greg Clark said it was clear that the NDP’s plan is to “cross your fingers and hope the price of oil goes up.”
The United Conservative Party said the downgrade shows that the NDP is “running Alberta off the fiscal cliff,” noting that the province will pay $1.4 billion in debt servicing costs next year.
“We’re not surprised,” Opposition house leader Jason Nixon told reporters.
“We have a government that is showing no signs of controlling their spending and clearly the credit agencies don’t trust them right now.”
Ceci told reporters Wednesday that because the government had reduced borrowing for capital this year, the higher costs from the credit downgrade will “come out in the wash.”
Mayor Naheed Nenshi said Calgary is watching the situation closely because it borrows for infrastructure projects through the province’s Alberta Capital Finance Authority.
“However, we have access to other credit facilities. So since our credit rating is very, very good, if that means we have to find different ways to borrow than through the province, it’s something we can look at.”
Despite all this positive economic news, it’s not filtering into the budget or the fiscal outlook.