Moody’s Investors Service says it expects the majority of municipalities in Canada will increase their capital spending in 2015 and 2016, as they tackle their growing infrastructure deficits, but the ratings agency sees debt levels as remaining manageable.
Moody’s says that most municipalities are focused on investing in growth as well as in upgrades of transportation, utilities and environmental services; and, that these infrastructure needs are growing the fastest in the country’s large metropolitan areas.
Based on 2015 budgets, Moody’s says its expects that capital spending by the majority of Canadian municipalities will likely approach on average a peak of 30% of total revenue in 2016. Capital spending could then level off, but it will still remain well above what is was over the last few years, when it equaled on average approximately 26% of total revenues.
However, the debt incurred to step up construction will remain affordable for most municipalities, Moody’s says. “Non-debt funding sources, including reserves, pay-as-you-go financing, and provincial or federal grants, will limit debt increases and support the expected continued rise in capital spending,” says Kathrin Heitmann, assistant vice president and analyst at Moody’s.
Among the municipalities that it rates, Moody’s says that it expects new debt issuance this year and next to remain similar to what it was in 2014. It notes that municipalities with a high level of liquidity have more capacity to borrow, and that they can increase their share of pay-as-you-go financing without weakening their credit profiles.
“We expect capital spending in large metropolitan areas with strong population growth and increasing urbanization to remain high in the medium term,” says Heitmann.