Hamilton retains high ‘AAA’ credit rating, debt remains ‘manageable’: report
Published October 20, 2023 at 1:36 pm
The City of Hamilton is projected to have a relatively modest and stable debt burden over the next two years, helping it earn the highest possible credit rating for the second straight year.
S&P Global Rating Agency assessed that the City of Hamilton’s credit rating remains at “AAA,” indicating a continued stable outlook.
“The stable outlook reflects S&P Global Ratings’ expectations that, in the next two years, the city will continue to implement prudent long-term financial planning policies such that its budgetary performance remains strong, generating modest after-capital deficits,” according to the Oct. 17 report. “We expect the debt burden will remain relatively stable and will represent about 20% of operating revenues at year end 2025.”
S&P Global Ratings wrote that Hamilton’s liquidity is a “key credit strength.” It estimated that total free cash in the next 12 months will be enough to cover more than 12 times the estimated debt service for the period.
“In addition, we estimate that Hamilton’s liquidity position will remain very high, with the debt service coverage ratio staying well above 100% over the next two years,” it wrote.
In the report, it also forecasted that Hamilton’s budgetary performance “will remain strong and debt will remain manageable.”
“Despite macroeconomic pressures, we believe the city’s budgetary performance will not deteriorate,” the credit ratings agency stated.
From 2021 to 2025, it expects operating balances to remain high at about 13 per cent of operating revenues, on average, supported by Hamilton’s stable property tax base.
“The city expects to see a surplus in its tax-supported results for 2023 and a small deficit in its rate-supported operations,” it added.
Moreover, it projects an after-capital deficit of one per cent of total revenues on average from 2021 to 2025 as Hamilton carries out its capital plan.
Report warns about potential flat or declining revenues or higher spending
The City said in a press release that the rating “builds on the City’s continued commitment to manage tax dollars responsibly and to sustainably deliver high-quality affordable services.”
“Hamilton’s continued stable credit rating by S&P Global Rating Agency is a great vote of confidence in the City’s fiscal management,” said Mayor Andrea Horwath in a statement on Oct. 18. “We all benefit from skillful and prudent management of the city finances and will continue working to make sure Hamilton remains the best place to raise a child and age successfully.”
The City said its approach to financial management is based on ensuring “strategic and sustainable investments” in services, programs and infrastructure in order to meet the needs of residents, businesses and community partners.
On the downside, S&P Global Ratings wrote that it could lower the rating in the next two years if flat or declining revenues or higher spending led to sustained after-capital deficits of more than five per cent of total revenues and if additional borrowing is projected to increase the debt burden to more than 30 per cent of operating revenues.
The rating comes as a Sept. 20 report for the preliminary 2024 budget outlook estimates that Hamilton’s residential tax could rise 14.2 per cent next year in order to maintain existing services and fund projects that are part of council’s priorities.
Horwath admitted the 2024 budget process will be “challenging” with people grappling with higher borrowing costs and inflation.
For the 2024 rate-supported budget, water and wastewater fees are predicted to potentially rise by 19.79 per cent on average.
Hamilton shows signs of ‘resilient economy’: U.S. credit rating agency
In the Oct. 17 report, S&P Global Ratings expects Hamilton’s “supportive institutions and prudent financial management practices” will boost the City’s creditworthiness.
“We believe Hamilton demonstrates characteristics of a resilient economy, including diversification,” the report stated. It gave the example of the City diversifying from steel production to other industries, such as advanced manufacturing, aerospace, agribusinesses, food processing, life sciences, digital media and goods transport.
Hamilton’s accessible location near the Greater Toronto Area also gives it an advantage by making it attractive for business and investment, according to the report.
Moreover, the report gave Hamilton credit for its “thorough and transparent disclosure; long-term financial sustainability plans; long-term operating and spending forecasts; and robust policies for investments, debt, and risk management.”
Citing pandemic support from senior levels of government, it said the City benefits from “an extremely predictable and supportive local and regional government framework that has demonstrated high institutional stability and evidence of systemic extraordinary support in times of financial distress.”
The S&P raised the City of Hamilton’s credit rating from “AA+” on June 16, 2017 to “AAA” on June 1, 2022.
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