Too many seniors? City's credit analyst worries we're getting too old

With municipal finances emerging as a major issue in next month's municipal election, City of Sault Ste. Marie's credit rating remains at AA-(stable), according to S&P Global Ratings, the world's leading provider of credit ratings.

"The City of Sault Ste. Marie's budgetary performance in 2017 was better than we had anticipated, with stronger operating margins and after-capital surpluses," analyst Siddharth Maniyar says in S&P's latest forward-looking opinion on creditworthiness.

"The stable outlook reflects our expectation that, in the next two years, Sault Ste. Marie will post after-capital deficits of about 1.3 per cent of total revenues on average in 2018-2020. We also expect the city will maintain tax-supported debt well below 30 per cent of operating revenues through 2020 while preserving a healthy liquidity position."

"Although we believe it unlikely in the next two years, we could lower the ratings if deteriorating financial management practices lead to aggressive capital spending that pushed Sault Ste. Marie's tax-supported debt to more than 30 per cent of operating revenues, and combined with weaker operating performance that will result in sustained after-capital deficits of over 10 per cent of total revenues.”

On the other side of the coin, Maniyar said S&P might raise the city's credit rating if our economy expands and growth prospects improve substantially.

"However, we view this scenario as unlikely in the next two years."

Sault Ste. Marie's aging population was viewed by S&P as a possible red flag.

"In our opinion, a weaker demographic profile, including a declining population and a relatively large share of elderly residents, constrains the city's economy," Maniyar said.

"Its population was an estimated 72,000 in 2018, down more than two per cent since 2016. As in the past, those 55 and over represented more than 25 per cent of the total estimated population."

"We estimate that, for 2016-2018, GDP [gross domestic product) per capita would be below the threshold of US$38,000, as per our criteria, based on income levels. Although Sault Ste. Marie continues to gradually diversify away from its traditional resource-based economy, we believe that medium-term economic and related GDP growth will remain muted relative to that of some peers."

The S&P Global report will be discussed at next week's City Council meeting.

The meeting will be livestreamed on SooToday starting at 4:30 p.m.