Are there a lot of old people in the Sault?

Sault City Ste. Marie’s credit rating agency is concerned that our unusually large elderly population could limit our growth prospects.

“Sault Ste. Marie’s challenging demographic profile limits the city’s growth prospects in our view,” S&P Global Ratings says in its latest rating commissioned by the city.

“According to the 2021 Canadian Census, the local population decreased by approximately 1.8 per cent, with nearly a quarter of the local population being over the age of 65 (compared to the national level of 19 per cent),” warns S&P.

Still, credit analysts praise local officials for trying to keep the Sault young.

“The city is taking steps to alleviate this situation by participating in the Rural and Northern Migration Pilot. This program supports the city’s goal of attracting skilled foreign workers to meet its economic and labor market needs.”

S&P’s latest annual credit rating to be presented to the city council on Tuesday shows the City of Sault Ste Marie at AA+ (stable) for 2024.

This is the same rating we have held for the last few years.

“A credit score is an unbiased third-party assessment of the city’s financial health and reflects how well an organization is financially managed, the current state of the local economy and the local government framework,” says Shelley Schell, the city’s chief financial officer and treasurer.

Factors considered for the rating score include:

• institutional framework
• financial management
• economy
• budget performance
• liquidity
• debt burden

“A strong credit score will aid the city’s ability to obtain long-term debt at competitive rates,” Schell says.

“The rating outlook is ‘stable’, meaning that the rating is unlikely to change in the next two years.”

Here are some excerpts from S&P Global’s latest rating for City of Sault Ste. :

We expect Sault Ste Marie’s local economy, including manufacturing and forestry, to support continued growth and local income generation despite socioeconomic and geographic barriers.

We expect the city to maintain a modest debt burden while issuing some debt in the coming years to support significant maintenance and growth-related projects.

However, the city plans to finance the majority of its capital plan internally, which we expect will result in small capital shortfalls over the forecast horizon. We expect the liquidity position to remain solid and more than adequate to meet debt service needs.

The stable outlook indicates that S&P Global Ratings expects Sault Ste. Marie will continue to record operating surpluses and small post-capital deficits on average.

We also expect tax-supported debt to remain below 30 percent of operating revenues through 2026 while maintaining the city’s healthy liquidity position.

We may downgrade the rating over the next two years if higher than expected capital expenditure requirements cause budget results to deteriorate, leading to average post-capital deficits of more than five percent of total revenues and greater reliance on debt funding for capital. increasing the city’s debt burden to more than 30 percent of operating revenues.

Although unlikely in the next two years, we could take positive rating action if the local economy’s growth and growth prospects improve significantly and management demonstrates a continued commitment to developing sound fiscal practices and policies.

Sault Ste. Marie is the third largest city in northern Ontario and its economy has traditionally been resource-based, particularly steel production and forestry.

Although the economy continues to diversify into other sectors (including tourism), we believe medium-term economic growth and associated GDP growth will remain muted compared to Canada.

Although GDP per capita is not available at the local level, we estimate based on the city’s income data that it is slightly below the national level of approximately $54,300.

In our opinion, Sault Ste. Marie demonstrates satisfactory financial management. Disclosure and transparency are what we define as good, and the city annually prepares one-year operating and capital budgets with a four-year capital forecast.

Beginning with the 2023 budget cycle, the city is preparing separate tax-supported and rate-supported budgets, and the administration aims to improve longer-term planning capabilities in the mid-term.

Our senior staff is experienced and we believe that debt and liquidity management is prudent.

Like other Canadian municipalities, Sault Ste. Marie benefits from a highly predictable and supportive local and regional government framework that demonstrates high institutional stability and evidence of exceptional systemic support in times of financial distress.

Recently, due to the pandemic, senior levels of government have provided operating and transport-related grants to municipalities, as well as direct support to individuals and businesses.

Although state governments mandate a significant portion of municipal spending, they also provide operating fund transfers and impose fiscal constraints through legal requirements to pass balanced operating budgets.

Municipalities generally have a good ability to match expenditures to revenues, except for capital expenditures, which can be intensive.

Any operating surplus finances capital expenditures and future liabilities (such as post-employment liabilities), usually through reserve contributions.

Municipalities have a track record of strong budget results; Debt burdens are low on average compared to global peers and growth has been moderate over time.

Sault Ste. Marie is embarking on a maintenance-focused capital plan, including increased investment in the West End Treatment Plant and biosolids plant.

Therefore, we expect post-capital deficits to average just under one percent over the 2022-2026 five-year baseline scenario, with capital expenditures averaging C$63 million annually in the forecast years.

We believe the city has ample room to delay capital projects if necessary. Considering property taxes are the city’s main source of revenue, Sault Ste. Marie’s income base will remain constant over the outlook horizon. In our base case, we expect operating balances to average slightly more than 15 percent of operating revenues.

The city plans to issue C$7 million in both tax- and rate-supported debt over the 2024-2026 forecast year to support its capital plan, and plans to increase its debt burden to approximately 10 percent by 2026.

The debt burden also includes approximately C$4.9 million in debt to Sault Ste.’s Public Utility Commission (PUC). Marie is what the city guarantees.

The guarantee supports a loan that will be amortized to maturity in 2026 and a draw on the commission’s operating line.

Although future capital projects could increase the city’s interest burden, we expect interest payments to remain low, below one percent of operating revenues, over the forecast horizon.

We do not consider the debt of Sault Ste. Marie’s government affiliates PUC Inc. and PUC Services Inc. as a contingent liability because we believe the city is unlikely to provide extraordinary support in a stress scenario.

In our view, the city has a strong liquidity position and satisfactory access to external liquidity for its financing needs.

We estimate free cash flow will average C$82 million over the next 12 months, covering 48 times estimated debt service for the period.

Next week’s city council meeting will be broadcast live SooToday It starts at 17.00 on Tuesday.