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Actually, the city’s credit rating has been downgraded before

January 14th, 2009 · 10 Comments

My learned friend Geoff Meggs commented today in the Globe and Mail that the city’s credit rating has never been downgraded before due to council actions.

Actually, I was reminded by someone with a better memory than mine that that’s not true. The credit rating was downgraded in 2003, when Geoff was then assistant to Mayor Larry Campbell, because of concerns about increasing labour costs and rising debt. (That’s where I learned the lesson at the finance director’s knee that a city should not be paying out more than 15 per cent of its operating budget to service debt, otherwise it’s getting into trouble. Or maybe it was in the ’90s that I learned that.) I think Geoff would argue that the downgrading was not a direct result of council decisions, since the debt had been accumulated by previous administrations.

Here’s the Sun story that was published at the time, where you will notice the ghostly re-appearance of finance director Estelle Lo, who was also warning at the time about the problems of taking on too much debt.

Debt, salary pressure topple city’s AAA credit rating

Dec. 5, 2003

For the first time, the city of Vancouver’s credit rating has been downgraded a notch by one of its three bond rating agencies.

Dominion Bond Rating Services announced Thursday it is taking the city from AAA — the highest rating possible — to “AA (high) with a stable trend,” citing concerns about building salary pressures and a rise in tax-supported debt.

The city is currently in negotiations with its unionized employees, whose salaries make up a large part of expenditures.

City financial officials said the rating change may not affect taxpayers, at least in the short term.

City finance director Estelle Lo said it is unlikely the change will affect the city’s ability to borrow or even result in higher borrowing costs, but “the impact of this change won’t be known until we go to the financial markets to borrow funds.”

Theoretically, the difference between AAA and AA could cost about $230,000 on a $100 million bond over 10 years, she said.

“Which is not high at all. But that’s purely theoretical and we may not have to pay that premium. It depends on the timing of the market.”

Mayor Larry Campbell, who likes to call himself a fiscal conservative, said he was not too concerned about the drop.

“We should assure the citizens there won’t be rioting in the streets and we don’t have the ERT [emergency response team] on standby,” he said.

But George Puil, a long-time NPA councillor who was defeated in the last civic election, said: “It’s very unfortunate. There was a certain amount of pride and honour that went along with Vancouver’s situation and we have protected that for years.”

He warned the rating drop could do serious harm to the city’s financial stability and could affect other municipalities in the Lower Mainland, because they borrow funds from an authority that cites Vancouver as a guarantor.

“It could have a sort of domino effect on other municipalities and TransLink and the whole municipal financial authority,” he said.

City financial officials told city council’s budgets committee Thursday that the other two agencies, Moody’s Investors Service and Standard & Poor’s, continue to rate Vancouver AAA.

“This is still, according to DBRS, one of the highest ratings of any municipalities in Canada,” said Ken Bayne, director of financial planning for the city, who also noted that some of Vancouver’s tax- supported debt comes from the regional parks and TransLink projects, which are beyond the city’s direct control.

Finance director Lo said only the federal government and Alberta’s provincial government now have AAA ratings from Dominion because they have greater taxing power and more resources. She said Vancouver, along with all other municipalities, is not likely to get its AAA back.

“They don’t believe the city of Vancouver is in the same league as the government of Canada and the province of Alberta,” she said. “They also have a general concern over the ability of Canadian municipalities to finance their growing infrastructure.”

Lo said this is the first time Vancouver’s rating has gone down and the assessment is based on trends over about the past years, as well as a look at the future.

Bayne, who noted that Standard & Poor’s and Moody’s have rated the city since 1980 and Dominion began rating it about 10 years later, said the city also went to a lower rating because of capital costs incurred by the Greater Vancouver regional district and TransLink.

“A big component of this rating is what happens at the region, so the big question for council is balancing our needs with what is happening at the region,” he said. “Some may tell you it is not worth the effort of maintaining this credit rating if infrastructure suffers.

“Sometimes a triple-A credit rating is just too expensive for a municipality to maintain.”

In a news release explaining the downgrade, Dominion said: “The consistent rise observed in DBRS-adjusted net tax-supported debt over the past several years, in tandem with the expectation of further notable growth over the medium term, have weakened the credit profile of the city to a level no longer consistent with an AAA rating.

“Fiscal performance remained strong in 2002, although building salary pressures were the key driver behind a slight dip in the DBRS- adjusted operating surplus to a still-healthy $131.4 million.”

The city is currently going through a review of next year’s budget of more than $700 million and is in negotiations with its unionized employees.

When it reviewed the preliminary budget last month, council was warned it faces a 5.3-per-cent rise in property taxes if no cuts or adjustments are made.

Lo and Bayne did not comment on labour negotiations, but Lo said council has to be careful to avoid arbitrary increases in property tax.

“Council has been very careful to look at tradeoffs,” she said. “We have to be very careful about balancing the needs of the capital expenditures, because it has an effect on debt.”

Moody’s, which reconfirmed its AAA rating for Vancouver Thursday, said a downgrade was highly unlikely, given the strength of the local economy and “the discipline displayed by the city administration in keeping spending and debt under control.

“Nonetheless, a sustained loss of discipline, leading to a significant increase in debt to fund infrastructure projects, would apply downward pressure to the rating.”

Both it and Standard & Poor’s, which confirmed Vancouver’s AAA rating earlier this year, are scheduled to do another review in 2004.

Bayne’s comment that Dominion’s review was based on the past five years, as well as future trends, was the cue for council members to make political jabs.

Budgets committee chairman Councillor Tim Louis asked if there had been any new debt since the new Coalition of Progressive Electors-council took over a year ago and, when Bayne said no, Louis replied: “Not a dime of debt on our watch.”

He and other COPE councillors were also quick to point the finger at previous Non-Partisan Association councils.

“This is about paying for past problems as they [Dominion] see it,” Councillor Tim Stevenson said.

NPA Councillor Sam Sullivan said: “The thing I love about a bond rating agency is … there’s no political motivation behind it,” he said. “They’re simply telling the truth.”

Puil said despite a warning one year ago that Vancouver was facing several challenges that could “negatively impact its credit profile,” he was “dumbfounded and disappointed” by the city’s new rating.

The warning was published last year in Dominion’s 2001 overview of municipal governments.

Puil said he was aware of the warning, but didn’t think a drop in the bond rating would come so soon.


The Dominion Bond Rating Service dropped Vancouver’s coveted AAA creditworthiness status. Key factors in Thursday’s announcement:


“Building salary pressures” drove down city’s operating surplus to a “still healthy” $131.4 million. These higher labour costs are predicted to mean higher property taxes and fees.

Capital project costs

The city’s tax-supported debt jumped 14 per cent, thanks in part to regional financing needs. Vancouver, owes $400 million — a figure that is “relatively high” when set aside other Canadian cities.

Property taxes, fees

Vancouver “will likely have to rely upon property tax and user- fee increases notably above inflation” in order to cover spending pressures, the most meaningful being salaries and debt-servicing charges.”


Until Thursday, Vancouver’s AAA rating from Dominion gave it the highest bond status available. Now only one city is in that category.

AAA: Peel, Ont., (pop. 960,000). Stable base, diverse economy, “few” negative factors.

AA (high): Vancouver, Edmonton, Ottawa and Hamilton. Finances under control, not much real difference from AAA.

AA: Calgary, Toronto.

AA (low): Winnipeg.


As the City of Vancouver was quick to point out Thursday, other bond-rating agencies retain a more favourable view:

Moody’s: AAA holding firm, despite acknowledgement of long-term issues.

Standard & Poor’s: AAA rating is intact.

Categories: Uncategorized

  • LP

    I just had to re-post my comment from the previous post. If you saw the other, you’ll notice I changed 1 & 2 around in this version.

    Further illustrating my point that political chess moves are being played, here’s our friend Ge-off from the Globe & Mail:

    “This is the first time in the city’s history that there has been any cloud over the credit ratings as a result of a council’s actions,” Councillor Geoff Meggs said.

    Mr. Meggs is part of the Vision Vancouver slate that won all but one seat on council in the November civic election. Vision blames the previous council, led by the Non-Partisan Association under mayor Sam Sullivan, for the financing mess.

    “If they do a credit downgrade, it should be called the Sam Sullivan legacy downgrade,” Mr. Meggs said yesterday.”

    Chess move 1: Make ambiguous claims about the potential loss to rile taxpayers.

    Chess move 2: Blame previous council as much as possible for anything and everything to do with village-gate. (repeat often in addition to other moves)

    Chess move 3: Get the provs involved (the request to amend the charter) so that your friend Carole can somehow link Vancouver council’s blunders to the Liberals.

    (Insert more moves here)

    Chess move ?: When the loss isn’t as much as you initially led people to believe, call yourselves heroes and wait for the votes to come in.

    Checkmate. Oh and another 3 years in office.

    As mastercard would say: “Priceless”.

    Note the mc analogy, credit, cards; as in house of, which have fallen, etc..

  • A. G. Tsakumis


    I have great respect for much of what you usually have to offer, but there are some points to note here…

    1) Gregor was lauded by Gordon for his reasoned approach to this whole mess.

    2) Gregor has made it clear that he does not want the OV debacle to be a political football. He has made that clear both the the Premier and Carole.

    3) The construction guarantee was, in fact, an NPA initiated mistake, as was closing with Millennium. Terry and Concord have assets in the billions and would have needed none of this hand holding, same goes for Peter Wall, who will always rank as one of the best minds in real estate–period. Sam ignored warnings from some who questioned why Millennium would pay over $20M more. It was, and still is, considered in local real estate circles as insanity. In my mind it’s the single worst buy, at that level, in the city’s history. And the accompanying guarantees and conditions should have had council running for cover, not cutting a deal.

    If Geoff is overstating the case, OMG! Imagine, a politician overstating the case??

    The NDP provincially have a long way to go before a plan is resolved for May. But the notion that the provincial Liberals should be made to pay for the general Olympic nonsense, makes sense to me…people are dying in our streets, there are shortages for everything from childcare to education to health services, etc. The downtrodden are ignored, the First Nations are thrown a pile of money without addressing real causes in their culture that are killing them, ALR is being punched out at will, friends and insiders are thick at the trough. We have some real problems that needed attention in this province over the last four or five years and Gordon ignored all of them. But $2.5B is okay to spend on the five ring circus??? We should have never gotten these Games. We should have taken care of our own first. Shame.

    Frankly, before I’d chastise Geoff for perhaps overplaying his hand I’d like to know the reason for such favoritism towards Millennium resulting in such a horrible deal that even a novice agent wouldn’t have cut…maybe you can get The Nutty One to answer that for us.

    Or reveal the donors list from the slush fund….

  • foo

    … and Glen Clark, who actually was the one who brought the 5 ring circus to town, is sitting Cheshire-like in his executive office right now.

  • Glissando Remmy

    Hey A.G.T., stop kissing “His Worship” arse please!
    You’ll get blisters.
    Mr. Mayor DID have a job in Victoria (I was told) but opinions are still out for what he was exactly doing there. I heard that for a politician he makes good juice.
    What we have right now at City Hall as Council and Mayor are the singing vultures from the 1967 Walt Disney “Jungle Book” cartoon.
    Same action plan, same decisiveness.
    “Hey lads, what we goanna do?
    I don’t know what you want to do?
    I don’t know, but let’s do something!
    So, what do you want to do?”
    Half of them are same old tricks, the other half still do not know what hit them.
    Funny bunch, don’t you think?
    They are all in need of a friend right now.
    I know, I’m bad, I need to be spanked!

  • LP

    Hi AGT,

    I as well, have always agreed with most if not all you have ever posted as well.

    Although our mayor is trying to appeal for calm and claims to “not wanting to politicize” this, I have my doubts that is even possible if it is even true. Politicians of all stripes have been known to say one thing and do another……

    I get it, he’s a nice if not great guy, however I think even you would find it hard to argue that it will be hard for him to stay true to himself, with who he’s found himself in bed with.

    As for it being too far from May for an impact, I would argue that the NDP has already launched their wonderful “Meet Carole” videos on the web. (Like we shouldn’t already know who she is, and if we don’t what the hell was she doing for the past 3 years.) Also the BCTF have already launched their anti-Liberal attack ads across BC radio and TV networks.

    I for one believe this campaign has started and EVERY single message will be crucial to bringing the NDP to power in just 4 months. Hence, whether Gregor says he doesn’t want this to be political, he can’t very well stop that from happening so he may as well try and look like the good guy.

    Onto Sam and my friend Geoff Meggs. As you answered a previous question of mine regarding why such right-wing conservatives would fall into bed with a guy who ‘loaned’ an addict drug money, I’ll add that I am no fan of our former mayor.

    That said, I am also no fan of Mr. Meggs and believe/know that he plays this game of politics better than most. Notice though, that I’ve called their moves brilliant, I may not like how they’re playing this, but I do respect their game. I’m also not sure that anyone in the NPA currently have the skills to take on their machine.

    All I’m trying to do is to point out the game to those whose comments I’ve been reading are filled with panic/paranoia over a supposedly huge loss we won’t find out for years to come.

    And for the province paying for this whole fiasco with the Olympic Village, I’d sooner they put some of that money into those other mentions of yours, not to mention the 2 pillars that have been sadly forgotten since that giant monolith pillar was opened.

    As an aside, isn’t it funny for lack of a better word, how 8 years changes things. In 2009 we now have Carole James and the NDP, still run by the unions, being the voice of reason over fiscal mismanagement. Who woulda thought?

  • Dawn Steele

    Spot on, AGT!

    Your closing question is very pertinent:


    Why would supposedly intelligent grown-ups with an understanding of prudent business and governance practices throw common sense to the wind? What other considerations may have influenced this?

  • LP


    One more thing. If some independent Vancouver citizens don’t take it upon themselves to question the current city council and mayor, sadly it will be left to Ms. Anton and the likes of citycaucus.

    Surely that will not serve the city well, especially considering the past election results. I think you could agree with that point.

    With regards to the media, unfortunately the rash of left-wing media bias and right-wing nut jobs like O’Reilly (down south) have multiplied all too much, and caused public perception to become skeptical of which side any story is truly coming from.

    In the case of the current council, it may be very incumbent on all of us to ensure they’re kept in-line……especially when they start discussing manhole cover designs and bench heights once again!

  • Curious Guy

    Here is a link to an interesting report from Estelle Lo on the City’s website:

    In it, she writes that the City wasn’t able to borrow $125 million it wanted, on acceptable terms, between Feb. and July 2008. But she hopes things are improving after July. I wonder if the City ended up borrowing this money or not?

    The report also says that “An issue of $125 million will incur approximately $15.6 million in annual debt charges beginning in 2009”.

    And now they want to borrow $458 million!!!

  • A. G. Tsakumis

    Thx to LP and Dawn…it sickens me to no end that we will blow billions and indebt ourselves for 14 dys of puffy chested lather, while people are, as I said earlier, dying either figuratively or literally, it’s bloody well unacceptable.

    As for Remmy, ah, yes, fairy stories seem to be your forte…I do not kiss the Mayor’s ass. He’s a friend who understands that there will be times that I will find fault and others where I will favour his position.

    In this case I have elected to hold the latter valid.

    Gregor is aware that this may not always be the case. And that’s precisely what I like about the man. He understands.

  • Vancouver Real Estate =DrugMoney

    With a 10 billion dollar a year illegal drug trade, an illegal drug trade that is the driving force behind Vancouver’s real estate magic market for over 30 years. Starting with the arrival of the Hells Angels in Vancouver, an arrival that took place to exploit the Asian invasion real estate boom, which was more myth than fact, however that was soon to change. Drug Cartels saw a wonderful opportunity in British Colombia, a land rich in talented financial confidence men who had learned their trade pushing deals on the Vancouver Stock Exchange, where penny stocks plays in mining companies would be used much the same way that real estate is used today, laundering vast amounts of dirty money into magical paper where tax could be avoided but assets could be gained. Opportunity that was created by a fraudulent immigration system designed by a Law Society that is more concerned at turning crime into a for profit business than protecting the interest of the innocent.

    Using immigration as a perfect cover story, and creating deals that would recruit unsuspecting business
    investors, British Colombia created a new kind of drug mule, one that did not carry drugs but instead laundered the suitcases of cash that these international drug cartels had made from their murders trade in illegal drugs. A profitable trade that enriches criminals and rewards War Lords, a trade supported by your North American dumb ass kids. It was the perfect economic hit man strategy, for the cover story was true, immigration was taking place and people where buying homes, and a few did have strong economic holdings. But the vast majority of the real estate growth was due to international drug cartels money laundering activities in Vancouver real estate. A story where the proceeds of crime in British Colombia where simply made to look like they came from Asia. A pay day and a Canadian passport was what the the mythical Billionaire from the third world got, and loyalty, silence and a clean revenue stream is what organized crime operating out of Vancouver’s financial district purchased.

    Mysteriously, families and individuals from poverty conditions in third world nations where showing up in Canada with millions of dollars in capital assets. It was apparent from the number of application that there where far more millionaires in places like Vietnam, Somalia, India, Hong Kong, Brazil, Nicaragua, Sri Lanka and a whole host of other very beautiful countries, than their was in the entirety of Canada. But for soft headed Canadians this did not seem strange. And for those that did see the anomaly, the cartels propaganda machine went into action branding such doubting Tomas naysayers as racist or Neo-Nazi.

    The international drug cartels with the assistance of Canadian law firms went recruiting, for unsuspecting dreamers, with skills they needed that where required to look after the cartels interest. These organized crime syndicates where wise and knew that to suborn honest people to do their dirty work they would have to be creative. As threats to life meant nothing to people that had grown up in the tough third world nations, have nothing, except for their dignity, they would die before giving that up. No what British Colombia’s illegal drug syndicates needed as leverage to coerce these moral law abiding, talented, managers was not a threat on their life, but a threat on their hope. And with immigration to a new land they had the perfect leverage. Like a fish out of water, once the newbie arrived, in a unfamiliar land, strange language and customs, Organized crime had them right where they wanted them, If you did not do as they wanted, you would lose everything, your home, your business, your children future.

    Not content to stop there, International organized crime invested heavily into political parties and politicians, looking to turn public assets into their private property. With drug dealers and money launders central to on going scandals, such as the sale of BC rail, a public asset which has been mired in government cover ups. It is little wonder that honest business is closing up and leaving, all the while leaving little doubt as to the power of International organized crime, and the scale to which International organized crime dominates ever aspect of both the political life as well as the business community.

    Organized crime operates with impunity in British Colombia, with both the support of the political parties and the judiciary. Unlike Mexico where President Calderon has warned that if they do not get organized crime under control the next president of Mexico will be a drug dealer. British Colombia has already past this point of no return, with Drug Cartels running real estate agencies, law firms, security services, construction companies, busing and trucking companies and of course taxi services. It is little surprise that politicians have become associates in the service of international drug cartels, looking after shutting down investigations, staying of charges, the issuing of special permits for immigration. 10 billion dollars a year, in the marijuana trade alone, makes British Colombia the third largest illegal drug market in the America’s. An illegal drug trade that just calculating the lowest earning business enterprise, the trade in marijuana, accounts for over 6% of British Colombia’s GDP.