City of Toronto: Issuer Presentation 2018 RBC Green Bond Conference, April 10
Presentation Highlights 1. City of Toronto Economic Profile 2. Fiscal Overview 3. Regulatory Environment 4. Additional Credit Strengths 5. Capital Borrowing Program 6. Green Debenture Program 2
CITY OF TORONTO – ECONOMIC PROFILE 3
Centre for Commerce 135 million people within a 500 mile radius Canadian Head Offices by Metropolitan Area Toronto 690 Montreal 381 Vancouver 233 Calgary 210 180 million Edmonton 112 Winnipeg 87 people within Ottawa 69 4 750 mile radius Quebec City 57
Broad and Diversified Economy Large diversified economy that helps shield City from slowdown City of Toronto – Estimated Share of GDP by Industry Group - 2016 Financial Services 20% Real Estate, Rental & Leasing 14% Business Services 11% Manufacturing 9% Information, Culture, Entertainment & Hospitality 8% Health Care 7% Public Administration 6% Education 5% Wholesale 5% Construction 4% Retail 4% Transportation & Warehousing 3% Personal Services 2% Primary and Utilities 2% 5 Source: Statistics Canada; Economic Development & Culture
Major Economic Development Activity (continued) • Toronto ranks first in high-rise buildings under construction in North America (159) # of High-Rise Buildings under Construction 6
FISCAL OVERVIEW 7
2018 Tax and Rate-Supported Operating Budget Where the Money Comes from ($Millions) Where the Money Goes ($Millions) 8
Housing Market and Property Tax • Property tax revenue not sensitive to changes in values • Property taxes take priority over other charges including 1 st mortgages • Tax Sale process 9
2018-2027 Tax and Rate-Supported Capital Plan Where the Money Goes Where the Money Comes from ($Millions) ($Millions) $39.8B Tax-Supported - $26.0B Rate-Supported - $13.8B 10
REGULATORY BACKGROUND 11
Financial Regulatory Background Legislative Safeguards for Investors (Ontario Municipal Act) • City’s debentures rank equally • City annual budget must be sufficient to pay interest and sinking fund contributions to retire debt • Annual budget must provide that estimated revenues are equal to estimated expenditures (Balanced Budget) • Proceeds from the sale of a debenture issue cannot be applied towards the payment of current expenditures • Debenture by-law cannot be repealed (Continued on slide 17) 12
ADDITIONAL CREDIT STRENGTHS 13
Very Low Residential Property Taxes 2017 Residential Property Tax Rates 14
City of Toronto Act/ Ability to Levy New Taxes • Toronto has unique tax-raising ability providing greater flexibility than most other Canadian municipalities Taxation Options Adopted Municipal Land Transfer Tax Personal Vehicle Tax 3 rd Party Sign Tax City Building Levy Hotel & Short-term Accommodation Tax Road Toll Tax Alcoholic Beverage Tax Entertainment & Amusement Tax Parking Levy Parking Sales Tax 15
Limited Pension Liability Risk • Toronto civic worker pensions managed by an arms-length corporation – Ontario Municipal Employee Retirement System (OMERS) • OMERS handles pensions for almost 1,000 Ontario public-sector employers including municipalities, school boards, libraries, fire & police departments and other local agencies • OMERS has a AAA rating from Dominion Bond Rating Service and AA+ from Standard & Poors • The funded ratio has increased for 5 th year in a row and reached 95% in 2017 - on track to reaching 100% by 2025 • In 2017, OMERS had a 11.5% return on net investments as assets grew by nearly $10B to $95B 16
Ownership of Large Enterprises Toronto Parking Authority CreateTO 17
Strong and Stable Credit Ratings • The City of Toronto maintains strong “The stable outlook reflects our expectation that in the next two years Toronto’s broad economy will debt credit ratings from three credit continue to expand, supporting revenue rating agencies: growth…We believe the city’s economic depth and diversity limits volatility, bolstering our assessment of its economy” Moody’s – Aa1 (Stable) (2002-Present) o Standard & Poor’s, October 20, 2017 S&P – AA (Stable) (2001-Present) o “The ratings are supported by Toronto’s large and dynamic economic structure as the leading DBRS – AA (Stable) (2002-Present) o commercial centre in Canada, its relatively low debt burden and considerable base of liquidity and reserves to manage unforeseen events.” • The City’s ratings reports point to key DBRS, August 10, 2017 strengths: “ The City of Toronto's Aa1 rating benefits from a o wealthy & diversified economy low debt burden, a healthy liquidity profile evidenced by a net cash position, a large and o low debt burden diversified economic base as well as a track o strong liquidity record of consolidated surpluses since 2008… o strong financial management The rating also reflects the city's additional unique taxation powers, which allow it to access o Emphasis on long-term financial additional revenue sources besides property taxes planning and user charges for environmental services .” Moody’s Investors Service, July 12, 2017 18
New City of Toronto Investment Policy New Regulation (effective Jan. 1 Policy on Asset Mix - Previous Mix vs. New Target Mix 2018) provides opportunity to invest in broader range of instruments Previous City New City Target Long-term investments must be Asset Mix Asset Mix made through independent Bonds 100% 70% Investment Board Canadian Equity 0% 4% Board to "exercise the care, skill, US Equity 0% 10% diligence and judgement that a International Equity 0% 3% prudent investor would exercise" in Emerging Market Equity 0% 3% making investment decisions Real Assets 0% 10% Expected Return 1.90% 3.40% Board’s investment activities Expected Volatility 7.00% 5.80% directed by City’s Investment Policy 19
CAPITAL BORROWING PROGRAM 20
Capital Borrowing Requirements • Key priority is State-of-Good-Repair of key infrastructure • Debt requirement for next three years is approximately $2.65B • Borrowing of $950M per year over next 2 years and $750M forecasted for 2020 • Re-opened and issued $300M of the 10-year sinking fund debenture on Mar 20 which brings the total debenture size to $700M o $650M left to issue in 2018 Tax & Rate Supported Debt Issuance 21
Capital Borrowing Requirements • Build benchmark-sized offerings o re-open deals to enhance liquidity • Terms of 10, 20 & 30 years favoured by the City of Toronto • Bullet maturity • Sinking Fund debentures • Annual contributions to the sinking funds are not used to "sink" the current outstanding bonds, rather they are held in an investment fund for repayment of the original amount of the debt at maturity • Typically 2-3 issues/year 22
Green Debenture Program • City commencing a Green Debenture Program in 2018 with debt issuance up to $300 million • Same financial and legal characteristics of other City debentures but net proceeds will be used to fund projects supporting City’s environmental sustainability strategies • Green debentures will rank equally with all other debentures issued by the City 23
Green Debenture Program (continued) • The City has an ambitious goal of reducing greenhouse gas (GHG) emissions by 80% by 2050 • Renewed investment into the City's core urban systems – buildings, energy supply, transportation, natural environment and waste management – will be necessary to realize its low-carbon future • The program framework has received a positive independent opinion from Sustainalytics, a leading Green Bond and Debenture second-party opinion provider “The City of Toronto Green Debenture is credible and impactful, and aligns with the four pillars of the Green Bond Principals 2017.” Opinion of Sustainalytics 24
Green Debenture Framework The Framework defines eligibility criteria in eight areas: 1) Renewable energy 2) Energy efficiency 3) Pollution prevention & control and utilizing waste as a resource 4) Sustainable clean transportation 5) Sustainable water and waste water management 6) Climate change adaption and resilience 7) Eco-efficient and/or circular economy principles integration 8) Green buildings 25
Green Debenture Framework Selection Process of Eligible Projects • Corporate Finance Division (CFD) responsible for selection of eligible projects in consultation with internal and external expert stakeholders • CFD to verify suitability and eligibility in collaboration with the Environment & Energy Division • Eligible projects must be included in the council-approved capital budgets and verified by external legal 26
Green Debenture Framework (continued) Management of Proceeds • Majority of capital projects funded by debenture have been completed or are substantially complete • Debenture proceeds applied directly to project to repay temporary funding for the project • Debenture by-law includes schedule listing capital projects to be financed by the debenture • In the rare cases, where substantial completion not met, funds will be held in a City account 27
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