Legacy Fund like money in the bank

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The sale of Norfolk Power and the resulting Legacy Fund from the proceeds did wonders for the county’s credit rating.

Ratings agency Standard and Poor’s raised Norfolk’s credit standing from A-positive in 2013 to AA-minus stable in 2015 on the strength of the $67-million windfall.

The cash infusion, a report to Norfolk council said, promoted Norfolk to the first rank in terms of liquidity — a prime consideration for setting interest rates when municipalities approach money markets for debenture financing.


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Norfolk’s policy is to maximize investment income from the Legacy Fund while spending the proceeds on basic county projects. The policy includes an expectation that the principal will be preserved.

At the Dec. 3 meeting, council heard that preserving the Legacy Fund isn’t necessarily essential to maintaining Norfolk’s favourable credit rating.

Jason Burgess, Norfolk’s interim general manager of corporate services, explained that Norfolk could spend the principal in ways that improve the county’s cash flow, in effect creating a perpetual return on investment through other means.

Expenditures fitting the bill, Burgess said, include essential hard infrastructure, debt retirement, or any spending that positions the county for economic growth.

Conversely, uses of the Legacy Fund that would diminish the county’s credit rating include day-to-day maintenance and ongoing operations. The filling of pot holes was cited as an example.

The latest report from Standard and Poor’s makes it clear that Norfolk will have a tougher time in the years ahead defending its credit rating.

Norfolk is about to go on a borrowing spree to pay for a number of essential infrastructure projects, many related to water- and waste-water treatment.

The county’s current tax-supported debt amounts to 31.4 per cent of annual operating revenue, which is currently in the range of $175 million.

By the end of 2020, this is expected to rise to 54 per cent. In its report, Standard and Poor’s said the county’s debt load becomes a drag on Norfolk’s credit rating once it reaches the 60 per cent threshold.


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In dollar terms, Norfolk is expected to take on $40 million in new debt over the next two years. The Dec. 3 report said Norfolk could expect a credit downgrade if this rose instead to $50 million.

“The margin is very tight,” Tyler Wain, a financial analyst in the county treasury department, says.

Standard and Poor’s flagged other considerations as well.

“We believe Norfolk’s lower income levels, aging demographics and weaker growth prospects constrain its economy,” their report says.

“Because of a continuing influx of retirees, we estimate those 55 and over will continue to represent more than 35 per cent of the total estimated population of about 65,000 in 2019. The aging demographics could negatively affect the labour pool and hinder investment in Norfolk, in our view.

“In addition, we consider the county’s location as less favourable compared with that of peers, based on Norfolk’s relative remoteness from major cities and transportation routes.”

Simcoe Coun. Ian Rabbitts cited these words as a warning. Rabbitts suggested it is going to get harder for Norfolk to maintain what it has, not easier.

“We know we’re an aging community,” Rabbitts said. “We know we’re a community of retirees.

“Those of us who are working are going to have to make up the difference in the local economy. We can’t just rest on our laurels and have that Legacy Fund contribute to our credit rating.”

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