‘Very strong economy and exceptional liquidity’
By Robert Frank
“We believe that we are now the highest-rated city in Canada,” St. Vincent de Paul Councillor Paolo Galati smiled, upon news that one of the biggest credit-rating agencies in the world, Standard and Poors, had upped Laval’s creditworthiness score to AA.
The New York firm spared no praise last week, in lauding the city’s fiscal accomplishments.
“The upgrade reflects our favorable view of Laval’s very strong economy, exceptional liquidity, very strong budgetary performances, very low contingent liabilities and strong budgetary flexibility,” it said in a statement, Dec. 9.
In practical terms, the upgrade will make the city’s bonds even more attractive to investors. That will lower the interest that Laval will have to eventually reimburse on the debt, leaving more funds available to invest on behalf of its taxpayers.
Outpacing the province
“Laval’s very strong economy expanded moderately in 2013,” Standard and Poors reported. “Labor force results were solid, in our view. The city’s unemployment rate dropped substantially to 6.5 per cent from 8.1 per cent in 2012. Employment rose rapidly (3.9 per cent) in 2013.”
“Results for the first three-quarters of 2014 are more mixed,” it added. “Employment is up, compared with a similar three-quarter period a year earlier (3.2 per cent) but the unemployment rate has risen to 7.7 per cent. Construction activity indicators slowed in 2013 as the total value of building permits fell 26 per cent and housing starts declined 16 per cent.”
“We believe that Laval’s GDP per capita is close to or greater than the three-year provincial average of US $43,300. As well, we believe the city continues to have above-average growth prospects,” Standard and Poors predicted.
One of the reasons that Laval is able to borrow on such good terms is that it has largely eschewed going into debt, Standard and Poors observed.
“Laval has strong budgetary flexibility, in our view. In 2013, modifiable (own-source) revenues represented 90 per cent of operating revenues, which was consistent with long-term values. Capital spending accounted for 19 per cent of total expenditures in 2013, which is lower than those of the past five years.”
It concluded that the city could go much farther and faster, with less provincial meddling.
“Similar to that of many Canadian peers, the city’s budgetary flexibility is moderately constrained on the expenditure side because the province mandates the majority of its services and service levels,” Standard and Poors concluded.
City of Laval Rating Score Snapshot:
Key rating factors
- Institutional Framework: Very predictable and well-balanced
- Economy: Very strong
- Financial Management: Satisfactory
- Budgetary Flexibility: Strong
- Budgetary Performance: very strong
- Liquidity: Exceptional
- Debt Burden: High
- Contingent Liabilities: Very low
Source: Standard & Poors