DBRS Morningstar Confirms City of Calgary at AA (high) and R-1 (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Debt rating of the City of Calgary (Calgary or the City) at AA (high) and its Commercial Paper (CP) rating at R-1 (high). All trends are Stable. The ratings are supported by the City’s approach to fiscal management, its relatively low debt burden, and its robust liquidity, while volatility in the global energy markets remains a vulnerability. The Stable trends reflect DBRS Morningstar's view that the City has been able to prudently manage temporary and short-term operating pressures, a view that is further supported by provincial legislation, which requires any budgetary shortfall to be recovered in subsequent years.

Similar to prior years, the City reported a strong post-capital expenditure surplus in 2021, reflecting improvements in tax revenue as well as other revenue sources driven by increased economic activity, which was partly offset by the winding down of government transfers related to the pandemic.

While the City elected a new mayor and 11 new council members in October 2021, the new council will likely continue to focus on programs to support pandemic recovery and the Council’s strategic priorities announced earlier this year. Calgary's 2022 operating budget represents the final year of the One Calgary plan (2019–22) and the next iteration (2023–26) is expected to be approved by the Council in November 2022. Following mid-cycle budget adjustments, the City is forecasting a balanced budget in 2022, with spending of $4.4 billion, largely unchanged from the prior year.

DBRS Morningstar expects Calgary's economy to maintain the growth trajectory through the medium term. Rising oil prices supported by continued economic recovery benefitting industries that rely on person-to-person services are expected to be a key drivers of growth for the City's economy with real GDP growth of 6.6% anticipated in 2022 and 4.7% in 2023. Key risks to the outlook remain centered on any pressures arising from the ongoing evolution of global geopolitical conflicts and energy prices as well as the heightened economic uncertainty (particularly in the form of increasing inflation and interest rates).

Contrary to prior expectations, the City’s tax-supported debt burden is expected to rise modestly as financing ramps up for infrastructure-related projects. In 2022, the City projects tax-supported debt to increase slightly resulting in debt per capita of $740. Net tax-supported debt per capita is expected to increase to slightly below $800 by 2026 thereafter, declining to around $750 by 2027. Assuming no growth in taxable assessment, tax-supported debt will likely be stable around 0.4% of taxable assessment over the medium term. Although some pressures may arise with issuance requirements for longer term projects like the Green Line LRT, DBRS Morningstar expects the increase in debt to be manageable.

RATING DRIVERS
A positive rating action is highly unlikely in the current environment. A downgrade could arise from a sustained deterioration in the fiscal outlook, or material acceleration in debt growth contrary to current expectations.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Canadian Municipal Governments, (April 14, 2022; https://www.dbrsmorningstar.com/research/397817) and the DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 1, 2022; https://www.dbrsmorningstar.com/research/396497), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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