City Finances

Capital financing, debt and credit ratings

The size of the City of Toronto means debt must be used to help in financing the projects contained in the capital budget. Debt can provide the City with more affordable financing by matching the repayment term to the economic useful life of the project, instead of funding the entire cost from current revenues. 

In order to provide services that are delivered through physical infrastructure, municipalities can issue debt in conjunction with other methods of capital financing such as contributions from current operations and reserves, and reserve funds.

The size of the City of Toronto means debt must be used to help in financing the projects contained in the capital budget. Debt can provide the City with more affordable financing by matching the repayment term to the economic useful life of the project, instead of funding the entire cost from current revenues. Without debt financing, present taxpayers could be paying for the entire cost of a project that will operate for many years and provide a benefit to future residents.

An Ontario municipality may issue long-term debt only for capital purposes and cannot borrow for operations, except by issuing promissory notes that must be repaid when the current year's tax levy is received.

Municipalities differ from other levels of government since the principal must be amortized over the term of the debenture and repaid to investors or contributed to a sinking fund that will provide for repayment when the debt matures. In contrast, the Federal and Provincial governments are allowed to refinance their debt when it matures instead of repaying the principal from their own resources.

It is recognized that the City of Toronto has a reputation as a respected participant in global capital markets. Adherence to its statement of debt issuance policies and goals enhances this reputation and ensures the City's continued access to these markets in order to raise funds through the issuance of debt securities in an efficient and cost-effective manner for the purpose of capital financing.

The City of Toronto is committed to achieving the lowest cost of funds when financing capital requirements, based upon current capital market conditions. When making decisions regarding the financing of a capital expenditure through the issuance of debt, Council must be satisfied that the lowest cost alternative is utilized from a total cost of funds perspective.

The capital financing policy ensures that Council complies with the debt issuance and management provisions contained in the City of Toronto Act 2006 (COTA) and its regulations while providing Council with the flexibility to meet the City's annual capital needs during its term-of-office.

The City seeks to maintain the highest possible credit rating. While the City recognizes that external economic, natural or other events may affect its credit rating, it is committed to ensuring that actions within its control are prudent and necessary as they relate to the issuance and management of short and long term debt.

 

(all dollar amounts in thousands of dollars) 2015 2014 2013
Debentures Issued By the City 5,617,385 5,234,971 4,896,579
Debt issued by Toronto Community Housing Corp. 904,576 681,034 639,526
Debentures issued by the City on behalf of TDSB 75,846 75,846 75,846
Loans payable to the Province 93,171 170,171 170,171
Loans payable 509 668 816
Debt issued by Lakeshore Arena Corporation 19,602 19,932 38,937
Sony Centre loans payable 425 - -
Sinking fund deposits (1,934,095) (1,945,279) (1,912,275)
Sinking fund deposits - TDSB (64,872) (58,831) (53,435)
Total Net Long Term Debt 4,712,547 4,178,512 3,856,165

 

The City's net long-term debts are to be recovered from the following sources:

(all dollar amounts in thousands of dollars) 2015 2014 2013
Property taxes and user charges 3,759,909 3,459,542 3,154,240
Toronto Community Housing Corp (TCHC) 921,106 681,034 639,526
Lakeshore Arena 19,602 19,932 38,937
Lakeshore Arena - Infrastructure Ontario 956 991 1,052
Toronto District School Board (TDSB) 10,974 17,013 22,410
Total Net Long Term Debt 4,712,547  4,178,512  3,856,165 


Source: Consolidated Financial Statement

  • Debt issued to support funding for capital projects
  • Key priority is State-of-Good-Repair of key infrastructure
  • Debt requirement for the City’s 10-Year Capital Plan is estimated to be about $6.6 billion
  • In 2017, the City plans to borrow about $900 million to fund capital expenditures. 
  • Please see the debentures maturity schedule as below:

For an accessible chart contact Christopher Li at 416-397-4213 or christopher.li@toronto.ca

The City of Toronto's credit ratings (as of March 10, 2017) are:

  • AA with a stable outlook from the Dominion Bond Rating Service

"The ratings are supported by Toronto’s large and dynamic economy, considerable base of liquidity and moderate debt burden."

DBRS, December 9, 2016

  • AA with a stable outlook from Standard and Poor's Canada

“The ratings reflect our view of Toronto’s very strong economy which, along with strong financial management, has helped the city to continue to attract residents and investment…The ratings also reflect our positive view the very predictable and well-balanced institutional framework for Canadian municipalities.”

Standard & Poor's, October 27, 2016

  • Aa1 with a stable outlook from Moody's Investor Service

 “The City of Toronto's Aa1 rating benefits from a low debt burden (46% of operating revenue in 2013), a healthy liquidity profile evidenced by a net cash position, a large and diversified economic base as well as a track record of consolidated surpluses since 2008… The rating also reflects the city's additional unique taxation powers, which allow it to access additional revenue sources besides property taxes and user charges for environmental services.”

Moody’s Investors Service, June 30, 2016