Montreal Deep in Debt

Commentary, Frontier Centre, Local Government, Media Appearances

A recent Winnipeg study has named Montreal the most indebted major Canadian city, with debts over three times higher than the national average for Canadian cities. The study, entitled “Local Government Performance Index: A Financial Analysis of 30 Canadian Cities,” was released last Monday by the Frontier Centre for Public Policy.

Former Mayor of Westmount Peter Trent agreed that Montreal was “very seriously in debt.”

“Montreal has traditionally been a basket-case, financially,” he said. “It still is. [Mayor of Montreal Gérald] Tremblay is doing nothing about these debt problems.”

Citing the city’s policies on subsidies and new residential developments as examples of poor policy, Montreal’s interim Director of Finances Jacques Marleau blamed past management mistakes for the present debt situation.

“It’s a well-known fact that, generally speaking, cities from Quebec have a higher debt burden than [other] cities in Canada,” he said. “It is quite difficult to compare cities across Canada. You can have discrepancies in accounting and also in the way cities are, and have been, managed. But the authors themselves noticed that there are a lot of limitations to the way they have done the study.”

Trent asserted that Montreal has had a “history of poor asset management for years.”

“Montreal is generally very poorly run,” he said. “We’ve got a problem [with] the political class in Montreal. [It’s] fairly low calibre, [with] inexperienced mayors with no management skills running the city.”

Yet Montreal has a relatively good credit rating of AA2 by Moody’s Investors Services, a group that rates bonds in descending alphabetical order from A to C, from highest to lowest. AA2 is two steps below the highest rating possible. Marleau pointed to the discrepancy between the Frontier Centre’s findings and the city’s good credit standing.

“I think that the conclusion they have reached-[the city’s debt] cannot be that figure; we wouldn’t have such a good [credit] rating if it was,” Marleau said.

Trent explained that such a system, which he had implemented when he ran Westmount, meant that the costs of new projects would be reflected in increased taxation. Montreal, on the other hand, goes out to borrow for “simple” projects like street repairs.

“Other cities, like Toronto and Ottawa, do not [borrow] like this,” Trent added. “Montreal has been a city of big projects-they’ve spent huge amounts of money on big programs like the Olympics instead of really investing in the infrastructure, and now they’re playing catch-up.”

Trent cited the present state of the city’s water infrastructure as one area the city has to catch up on.

But what can be done to remedy the city’s debt problems?

“Pay it back,” suggested Dr. Leah Brooks, a McGill economics professor specializing in public and urban economies. “The best way to pay a debt [off] is to have a lot economic growth, without actually raising tax rates.”

Brooks recommended that the city implement policies that would attract businesses, such as providing subsidies or creating a business-friendly environment.

“Businesses want to locate in a city where they think they can do well, where there are networks they can interact with,” she said. “Any policy that makes Montreal more business-welcoming to those ends would be useful. Or, it could find oil, like Calgary.”

Marleau posited that it is easy to overstate the amount of the debt bill that residents will have to foot. Acknowledging that Montreal’s total outstanding debt is presently nearly $6-billion, he point out that of that amount, “there is a subsidized total of $1.3 to $1.4-billion, [which] will be paid by the province, not taxed to citizens.”

Marleau added that the city is presently working on improving its debt management policy in order to incur less debt in the future.

“What will count more when we go to the market, is our rating, which we have been improving since 2005 to 2006,” he said. “Our debt profile is not so bad. We have a strategy looking forward: a debt management policy that was implemented in 2004. We [will] introduce more components to try to pay more investment on a cash basis.”

Montreal recently decided to introduce a new tax to pay for the investment it must make in fixing its water system-the present value of which is $100-million, according to Marleau.

“Looking forward, there won’t be any debt created to improve our water situation,” he said. “We have to look at a plan for moving forward, for improving.”

Trent dissented with Marleau’s optimism, stating that he didn’t believe it was likely that there would be any change in Montreal’s level of debt in the near future until there is drastic managerial improvement.

“We’re not going to see a change until we get mayors that are just going to get in there, roll up their sleeves, and clean up the mess.”