Taking note of what it terms the "high institutional stability" of senior levels of government, credit analyst S&P Global Ratings is maintaining the City of Sault Ste. Marie's credit rating at AA+ (stable).
"As do other Canadian municipalities, Sault Ste. Marie 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," says Sabrina J Rivers, a New York-based analyst, in S&P's most recent update of the city's creditworthiness, released this week.
"Most recently through the pandemic, senior levels of government provided operating and transit-related grants to municipalities, in addition to direct support to individuals and businesses," Rivers reported.
"Although provincial governments mandate a significant proportion of municipal spending, they also provide operating fund transfers and impose fiscal restraint through legislative requirements to pass balanced operating budgets," she said.
"A credit rating is a neutral third party assessment of the financial health of the city and reflects how well an organization is managed financially, the current state of the local economy and the local government framework," says Shelley Schell, the city's treasurer and chief financial officer, in a report prepared for Monday's city council meeting.
"A strong credit rating will assist the city's ability to obtain long term debt at competitive rates. The rating outlook as 'stable' means that the rating is not likely to change in the next two years," Schell said.
Other remarks from the S&P Global update:
"The stable outlook reflects S&P Global Ratings' expectation that, in the next two years, Sault Ste. Marie will continue recording operating surpluses and small after-capital deficits, on average. We also expect tax-supported debt will remain below 30 per cent of operating revenues through 2025, while the city preserves a healthy liquidity position.
"We could lower the rating in the next two years if larger-than-expected capital spending requirements cause budgetary results to deteriorate, leading to average after-capital deficits of more than five per cent of total revenues and higher reliance on debt funding for capital, increasing the city's debt burden above 30 per cent of operating revenues.
"Although unlikely within the next two years, we could take a positive rating action if the local economy expands with growth prospects notably picking up and management demonstrates a sustained commitment to developing robust financial practices and policies.
"Despite the impacts of macroeconomic headwinds, we expect the city's main industries – including manufacturing and forestry – will support ongoing economic growth and support local revenue generation.
"However, Sault Ste. Marie continues to face socioeconomic and geographic hurdles. Similarly, due to capital requirements necessary to support maintenance and growth-related projects, we anticipate that the city will post small overall capital deficits, which will lead to a somewhat higher – though still modest – debt burden. We expect the city's liquidity position will remain robust.
"A growing economy and sound financial management practices will continue to support Sault Ste. Marie's creditworthiness.
Sault Ste. Marie is the third-largest city in Northern Ontario and its economy relies mainly on steel manufacturing and forestry.
"Although the city is gradually diversifying from its traditional resource-based economy to other sectors such as tourism, we believe that medium-term economic and related GDP growth will remain muted relative to that of Canada.
"While GDP per capita is not available at the local level, we estimate it to be somewhat below the national level of about US$55,000 based on the city's income data.
"Sault Ste. Marie's challenging demographic profile limits the city's growth prospects, in our view. According to the 2021 Canadian Census, the local population fell by about 1.8 per cent over a five-year period, and approximately a quarter of the local population is over the age of 65 (compared with the national level of 19 per cent.
"We continue to monitor the success of the Rural and Northern Immigration Pilot program, a federal government project to help smaller rural and northern communities attract and retain foreign skilled workers to meet their economic development and labor market needs.
"In our view, Sault Ste. Marie demonstrates satisfactory financial management. Disclosure and transparency are what we characterize as good, and the city prepares one-year operating and capital budgets annually, with a four-year capital forecast. For the 2023 budget cycle, the city prepared separate tax-supported and rate-supported budgets for the first time. Management is also looking to develop further long-term plans over the medium term.
"Senior staff is experienced, and we believe that debt and liquidity management is prudent."
Monday's city council meeting will be live-streamed on SooToday starting at 5 p.m.