Capital Financing
The City uses debt to help finance large capital projects. This provides 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.
The City’s capital projects are funded by a variety of sources including the issuance of debt.
Debt provides the City with affordable financing and matches the repayment term to the economic useful life of the project. Without debt financing, the City may be hindered from taking on large capital projects. Also, present taxpayers would be funding projects that provide long-term benefit to future residents.
An Ontario municipality may issue long-term debt only for capital purposes and cannot borrow for operations. The only exception is issuing promissory notes that must be repaid with the current year’s tax levy. Repayment of municipal debt is amortized over the term of the debenture with regular contributions being made to the sinking fund. The city auditor certifies the sinking fund balance annually. If the balance certified is less than the amount required in the year for the repayment of the sinking fund, the City will pay an amount sufficient to make up the deficiency into the sinking fund.
The City of Toronto is a respected participant in the global capital markets. Adherence to the Financing of Capital Works Policy and Goals maintains the City’s reputation and affords continued efficient and cost-effective access to capital markets.
The City’s debt issuance guidelines and policies are outlined in the following documents:
City of Toronto Long-Term Debt ($ 000s)
| 2016 | 2015 | 2014 | 2013 | |
|---|---|---|---|---|
| Debentures issues by the City (Total Outstanding) |
5,824,726 | 5,617,385 | 5,234,971 | 4,896,579 |
| Debt issued by Toronto Community Housing Corp. | 955,976 | 904,576 | 681,034 | 639,526 |
| Build Toronto Inc. Loan | 33,407 | 33,407 | 0 | 0 |
| Debentures issued by the City on behalf of TDSB | 75,846 | 75,846 | 75,846 | 75,846 |
| Loans payable to the Province | 0 | 93,171 | 170,171 | 170,171 |
| Loans payable | 336 | 509 | 668 | 816 |
| Debt issued by Lakeshore Arena Corporation | 19,259 | 19,602 | 19,932 | 38,937 |
| Sony Centre loans payable | 340 | 425 | 0 | 0 |
| Sinking Fund deposits | (1,766,234) | (1,934,095) | (1,945,279) | (1,912,275) |
| Sinking Fund deposits – TDSB | (71,246) | (64,872) | (58,831) | (53,435) |
| Total Net Long Term Debt | 5,072,410 | 4,745,954 | 4,178,512 | 3,856,165 |
City of Toronto’s net long-term debts are to be recovered from the following sources:($ 000s) *Not including mortgages
| 2016 | 2015 | 2014 | 2013 | |
| Property taxes and user charges | 4,057,913 | 3,776,013 | 3,459,542 | 3,154,240 |
| Toronto Community Housing Corp (TCHC) | 955,976 | 904,576 | 681,034 | 639,526 |
| Build Toronto | 33,407 | 33,407 | – | – |
| Lakeshore Arena | 19,259 | 19,602 | 19,932 | 38,937 |
| Toronto District School Board (TDSB) | 4,600 | 10,975 | 17,013 | 22,410 |
| Leaside – Infrastructure Ontario | 915 | 956 | 991 | 1,052 |
| Sony Centre | 340 | 425 | – | – |
| Total Net Long Term Debt | 5,072,410 | 4,745,954 | 178,512 | 3,856,165 |
The City issues debt to support funding for capital projects with a priority on state-of-good-repair of key infrastructure
The debt requirement for the next three years is approximately $2.65 billion. In 2018, the City plans to borrow up to $950 million to fund capital expenditures.
Forecasted Debt Issuance
The City typically issues sinking fund debentures with bullet maturity in terms of 10, 20 & 30 years.
Annual contributions to the sinking funds are held in an investment fund for repayment of the original amount of the debt at maturity.
The City often re-opens deals to build benchmark-sized offerings and enhance liquidity.
| Long-Term | Short-Term | Outlook | |
|---|---|---|---|
| Moody’s Investor Service | Aa1 | P-1 | Stable |
| Standard & Poor’s | AA | A-1+ | Stable |
| Dominion Bond Rating Service | AA | — | Stable |
“The City’s large and diversified economy, competitive tax burden, and robust liquidity position are important credit strengths.” DBRS, September 26, 2018
“The City of Toronto’s Aa1 rating benefits from a low debt burden, 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, April 23, 2018
“The City has managed its budgetary pressures well while maintaining very high levels of reserves and liquid assets.” Standard & Poor’s, October 11, 2018
