Moody’s Flags Risk and Threatens Rate Cut Because of Ontario Budget Effects

It seems that the Ontario Budget announced in April is the gift that keeps on giving, even though you wish you could return it. One of the world’s leading credit agencies is warning that the cuts to funding and other proposed actions in the budget could result in a rate cut to Ontario’s municipalities, as cities across the province are forced to deal with $2 billion loss in revenue over the next 10 years.

A report released by Moody’s last week (and reported on by iPolitics) warned that the amalgamation of public health agencies and paramedic services, cuts to childcare and early years programs, and the cancellation of the increase portion of the gas tax will cut a big hole in municipal budgets that they’re going to have a tough time compensating for.

“While the changes benefit Ontario’s credit profile, they are credit negative for the province’s municipal governments,” said the report.

Moody’s has downgraded the Province’s credit rating once already. Back in December, the credit rating agency reduced Ontario’s rating from Aa2 to Aa3 because of “the combination of increased debt and slow revenue growth will result in a faster than previously anticipated increase of the province’s debt burden.”

This new report specifically refers to the effect on municipalities, and even though the government announced last month that they were going to delay the implantation of funding cuts till 2020, there are still a lot of unanswered questions. The government has yet to say, for instance, how exactly the public health agencies and paramedic services are going to be merged, and what the new regulations will be, even though the responsibility for more funding will fall on municipalities.

“This is simply adding to downward pressure on the rating but not to the point where there’s an outlook change or an actual rating change,” Moody’s vice-president Michael Yake said to iPolitics in an interview.

Yake added that efficiencies “could solve a little bit of the funding problem,” but the fact of the matter is that the solution will involve “likely raising taxes, likely cutting some of the non-essential services, [and] even drawing on the reserves.”

“Municipalities are going to be able to meet this challenge,” Yake added. “But not without other implications, which are likewise negative down the road.”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s