City shouldn’t spin rating agency report
In the recently released Standard & Poor’s credit outlook, things look good enough for Saskatoon to keep its AAA credit rating, something that we have had for a decade.
Politically, credit ratings are the most important thing in the world, unless you have been downgraded. Then they don’t matter at all. Since we still have a AAA credit rating, city hall sent out a press release touting how good the report was.
The report was subtly titled: “City’s economy ‘very strong’ and debt burden ‘very low’: report.” And it quotes Saskatoon’s chief financial officer Kerry Tarasoff saying, “Our citizens need to know this is a very positive piece of news.
“Despite a perception S&P may have cautioned the city about its debt load, the agency has not issued any warning,” Tarasoff says in the release, adding: “We have a triple-A rating with a stable outlook which is a fantastic achievement and consistent with our past ratings.”
If you stop reading at this point, things are great for Saskatoon. After tracking down the original report, I found that it outlines many positives for Saskatoon, but the agency also cautions that it has some concerns. The positives say the city’s economy is doing well and our debt load is much more manageable than that of other cities.
Saskatoon has taken a fiscally conservative approach to growth in the past. That is frustrating at times, because we are often behind the growth curve. But it also means that when we spend money or take on debt, we can afford to do so. Saskatoon has taken that approach since its formation. That fiscal conservatism has saved us from overwhelming debt in bad times.
However, the city’s spin on the latest report left out some important parts of the Standard & Poor’s assessment. Saskatoon’s debt will rise substantially in 2016, which is about the same time that the downturn in the provincial economy would be felt.
S&P also suggested that conditions could exist that the city’s outlook could be downgraded if things got bad: “The recent plunge in oil prices and the weak Canadian dollar will likely result in some downward revisions to these projections because the oil sector, which also contributes a significant proportion of provincial revenues through direct royalties, generates almost 20 per cent of the province’s GDP. We estimate that Saskatoon’s GDP per capita would be in line with the province’s.”
It goes on to say, “We believe the city’s economic fundamentals are very strong, although we expect a downturn in the resource sector would affect its economy through higher unemployment, lower population growth, and lower revenue.”
That sounds like a caution to me.
It shouldn’t surprise the city or any of us. Federal Finance Minister Joe Oliver has said repeatedly that the downturn in commodities is going to be bad for Canada and the provinces. Premier Brad Wall surprised SUMA delegates by saying that the province will lose $600 million to $800 million in revenue, mainly because of oil prices.
Some economists are predicting a 2017 recovery while others are suggesting oil could hit $20 a barrel, which would devastate the economy even more. So expect a lot less money from the province to pay for things in Saskatoon.
No one knows how bad this will be, or how long it will last. No one outside of the House of Saud knows how long Saudi Arabia will keep pumping oil at current volumes, the factor that’s driving the low prices.
Locally, home builders are backing what Standard & Poor’s has to say and have called for a slowdown of development for the land bank. While reading the S&P report, I listened to three separate radio ads from home builders offering incentives up to $10,000 to purchase a new home. The local economy is softening.
Despite that, Saskatoon is in far better shape than other cities. The civic administration and councillors deserve credit for sound financial decisions. Standard & Poor’s AAA credit rating reflects that, but it also warns of a couple of difficult years ahead.
Every other level of government is talking about the slowdown. Other cities are having frank and public conversations about what is going on. Consensus and plans are being developed. Yet, in Saskatoon, the city is sending out press releases stating that everything is fine and we should ignore media reports.
The people of Saskatoon are smart enough to handle the truth. We are getting the truth from the federal and provincial government, but in Saskatoon all we get is spin from the city. We deserve better.