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READING TRESPASSERS WILL BE DEALT WITH BY THE FULL FORCE OF THE LAW!

Whew. That should protect me. I have been scolded but I can learn. I can transform myself from being one of a bunch of "personality-driven naysayers who undermine Windsor's best interests to advance their own agendas." I don't want to be considered amongst the "malcontents, myopic whiners and hired saboteurs." I can be positive, linked arm-in-arm with my fellow Windsorite cheerleaders and sycophants and put on my rose-city coloured glasses to put a positive spin on everything that is wrong with the City. No more negativity coming out of my mouth that can be used by other cities' economic development commissions to hurt us. Only the good stuff now!

I had not intended to write much about the Standard & Poor's upgrade of the City of Windsor to "AA" when I saw it in the newspaper, I could not believe what I read. But who was I to argue with the geniuses at S&P? Congratulations to Eddie and all that for getting us the increase. Why should I again write about Creditwatch? Who needs the hassle. Let outsiders look after themselves. Caveat Investor!

However that was before the Windsor Star's designated "hitman" decided to write to me. He/she is the person who sometimes likes to correct what are believed to be my errors in my BLOG or to ask why I have not blogged something that this person considers relevant. Here is what was written this time:

• "Hey Ed,
  
  How come no comment on the city's improved bond rating...doesn't fit the agenda, I guess...I'm guessing there'd be comment if it had dropped......"

And my reply:

• "Geez [Name of person],,,,,,,give me chance.
  
  I can only research so much at one time. I'll be commenting on it.
  
  Glad you are still reading my BLOGs!"

And a PS

• "PS. I am going to blame you (not by name since I keep sources confidential) if I am attacked as a naysayer "

I am not privy to the way that the rating services give their grades to municipalities. All I know is that I live in Windsor and I see certain things going on here and I wonder how anyone can say that this City should be upgraded from a financial perspective. It's my point of view just like the AA rating is that of Standard & Poor's.

Here the concerns I have. Whether they are relevant to Standard & Poor's I have not got any idea. I will make my remarks in the context of the S&P report as published on the City website. But that is not all. I will reveal as well:

WHY STANDARD & POOR'S HAD NO PROBLEM IN RAISING THE CITY'S RATING!

Let me first deal with the S&P report:

• City of Windsor Upgraded To ‘AA’ On Debt Reduction Progress
  Rationale
  
  On Nov. 19, 2007, Standard & Poor’s Ratings Services raised its long-term issuer credit and senior unsecured debt ratings on the City of Windsor to ‘AA’ from ‘AA-’. The outlook is stable.
  
  The ratings on Windsor, in the Province of Ontario, reflect:
  
  􀂃 Declining debt burden. With the implementation of a debt reduction policy in recent years and the continuation of the 1% capital levy, Windsor’s direct debt burden continued to fall. At the end of 2006, the city’s direct debt stood at 25.7% of operating revenues. Standard & Poor’s expects this to continue in the medium term. We expect Windsor’s direct debt burden to increase moderately in the next year following a C$40 million issuance next year, then decline to below 25% of revenues by the end of 2010 as projected by Standard & Poor’s. This level would be below the middle of the range for similarly rated peers;

You have to admit that sounds pretty good. Except here some things that trouble me with respect to debt reduction that I have seen previously:

• As I wrote before "Long term debt was projected to be by 2007--$217 million ($56 M higher than now) and by 2010--$191 million ($30M higher than now) and that does not include the $206 million employee future benefit obligation (as at 2004). Are those numbers still valid?
• You think we have a program that actually reduces the amount of debt outstanding. Not so. "The name Debt Reduction Fund is probably a misnomer. It is probably better named the Debt Avoidance Fund. The City's debt is not callable (i.e., not repayable ahead of schedule). Therefore no matter how much money would be available, we could not repay any long term debt prior to its normal retirement date. However, the City can refrain from issuing debt for new projects and thereby allow the debt to reduce annually as a portion of the existing debt comes due. In summary, by avoiding new debt we allow the existing debt to gradually decline.
• We have a unique way of reducing debt in Windsor. As was said in the WUC financial report in 2005, we don’t use the money for capital infrastructure improvements… rather we use it to pay down loans. "we’ve spent less money on capital build programs, giving us greater cash flow and allowing us to meet key debt reduction targets. Our focus on debt reduction will help us to sustain financial stability and will allow us to continue to reinvest in our infrastructure and operational programs." Right, we are suffering the consequences now
• We don’t replace buses when necessary in Windsor… we do defer purchases and then increase fares
• As the Residential and Civil Construction Alliance of Ontario report on bridge improvements tells us… it looks like we need to spend $5-7 Million per year annually. The 2007 budget is $1.5 million. Fingers crossed we do not have a tragedy here.
• We don’t take out long-term debt for an arena … we just bridge finance.
• Pay as you go makes terrific sense. For the City. Don’t you get it? We are now the City’s banker and we’re really good because we don’t charge any interest. Take it out of our pockets and save the expense for interest.

There is more:

• 􀂃 Robust budgetary surplus. Compared with financial performance in the past two years, Windsor’s operating balance has remained stable at 15.5% of operating revenues (Standard & Poor’s-adjusted), which is at the median of similarly rated domestic peers. As with other Canadian municipalities, Windsor continued to face budgetary challenges in 2006, such as the need to revitalize aging infrastructure. Despite these pressures, Windsor’s overall budgetary position, which includes capital revenues and expenditures, remained stable at a balanced position, which means that the city is generating sufficient liquidity to fund a portion of its capital program;

Again that is good news but

• we still have to raise taxes even though we are trying to cut $15 million from costs
• It is so robust that we can’t afford to finance a Buskers Festival although we do have enough money to help out Eddie’s friend Roger in Detroit
• With the highest unemployment rate in Canada are surpluses going to disappear very quickly as social needs increase? Haven't we cried about lack of money over some Mexican immigrants coming to Windsor and how we could not afford it.
• Yes there are challenges for aging infrastructure… $830 million worth just for water nevermind roads and sewers. But don’t forget that we will have to spend a whole bunch of money for a new City Hall and $100 million or more for servicing airport lands and building an intermodal hub. And then there will be those costs to cut the grass on all those Greenlink parks and to pay for policing and maintenance and insurance and repairs.

Then the next section:

• 􀂃 Improving financial flexibility. We expect the city’s financial flexibility to improve in the medium term, as a result of the city’s implementation of the aforementioned capital levy and receipt of federal and provincial gas tax revenues, which the city has earmarked for transit and road improvements. In addition, similar to other municipalities in Ontario, Windsor should benefit from the gradual uploading of the Ontario Drug Benefit and the Ontario Disability Support Program to the provincial government during the next four years.

Yes sir, we are so flexible.

• As I told you Eddie wanted the GST money to help pay for the support for the Mexicans who came to Windsor recently and to help out Mr. Mancini with brochures.
• With regard to gas tax, Windsor is projected to receive approximately $4,100,000 annually when the full 2 cent allocation is fully implemented after October 2006 from the province [actual $3.8 million in gas tax revenues to be used for transit]
• The City of Windsor maintains more than 1,000 kilometres of roads, and 20 per cent of them require repair, said Mike Palanacki, director of operations for the public works department. To address the needed repairs, he said, the city should be spending $24 million annually, but this year only $5 million has been earmarked.
• The city of Windsor stands to receive about $33 million through to 2010 from federal gas tax revenue. "That doesn't even barely scratch the surface," Francis said. The city still has an "infrastructure deficit" -- repairs to its infrastructure required over the coming years -- of over $150 million. "For the country to be strong, our communities need to be strong." 02-18-2006

These strengths are partially offset by:

• 􀂃 An economy that is somewhat less diversified than that of similarly rated peers. Windsor’s economy was negatively affected by the economic slowdown in the province and the U.S. The city’s economy continued to face challenges from the slowdown in the manufacturing sector, particularly the auto sector. The city’s concentrated exposure to the auto sector, an industry that tends to be cyclical, is high compared with that of rated peers. Nevertheless, in recent years, the city’s various economic diversification initiatives have begun to pay dividends. Other sectors include tourism, hospitality, and biomedicine. The city is strategically located on the southwesttip of Ontario and adjacent to one of the most important gateways to the U.S. The expectedexpansion of border crossing capacity by 2013 should help bolster trade in the long term;

I had trouble with this section:

• Somewhat less diversified. Doesn't he know that we are the auto capital of Canada, or rather the Big Three auto capital and how many thousands of jobs we have lost so far including spinoff jobs. If he thinks the change in the auto industry that is taking place is cyclical, I better give him Dennis DesRosier's phone number
• tourism and hospitality is dying or hasn't he read anything about a higher Canadian dollar and the perceived border problems due to local politicians shooting off their mouths
• our location doesn't seem to be doing is very much good since the border still hasn't been fixed up
• as for our hopes of our Economic Development Commission doing something, I'm afraid they have gazelles to feed and brochures to publish. I mean it only took them a year to find that desk drawer that was empty of any kind of marketing materials.

More Issues:

• 􀂃 Windsor’s large postretirement liabilities, which are among the highest in its peer group.

$206 million in 2004


Here is the S&P Outlook

• The stable outlook reflects Standard & Poor’s expectation that the city’s debt burden will continue to fall and that its capital spending will not increase significantly beyond its current plan. Substantial improvement in Windsor’s operating performance and its postretirement obligations could result in an upward ratings revision. Conversely, a further marked, sustained deterioration in the city’s economic performance or a sharp deviation from the current capital program could result in a negative rating action.

• Terrific conclusion that protects S&P coming and going.

So that's what I think from someone who lives in Windsor and who sees what's happening here every day. I couldn't believe what I read but there it is. Let investors chew out S&P not me.

But something doesn't make sense to me. Surely the S&P fellow knows all the stuff that I have said. All he has to do is the most basic search about Windsor and he would find out everything. So what's really going on?

I wrote to S&P and the analysts involved and asked the following question

• "I would appreciate if you could advise me what your process is when you examine a municipality in order to do a rating so that I might write a BLOG on that subject. For instance do you actually travel to Windsor and meet with the officials of the City? If so with whom would you meet? How long would you stay here? Do you examine the books and records IE do a mini audit? Do you ask the City to complete a questionnaire or a survey instead of or in addition to a visit? Do you undertake own media searches about what is taking place in the City so that you can decide on its economic vitality and its economic future?"

I haven't got an answer back yet and I don't know if I will. But I have a theory, oh yes I do.

You see the S&P analyst really didn't have to worry about Windsor. He is more interested in protecting investors and not taxpayers. So if everything looks good for investors, he's doing his job. If things are not good for taxpayers, well as the Mayor said, we can always move.

Want to know what I think... the Mayor has told S&P all about the P3 deals that he may do. As I have written before, they include the Tunnel, Enwin, WUC. Perhaps the new DRIC bridge plays a role too somehow along with the DRTP rail tunnel and maybe even the arena. It could include the airport too.

Infrastructure is sexy and profitable. Eddie could lease assets for up to 99 years (hey, we're still the owner), get a huge upfront payment, pay off debt, build all kinds of ego monuments and still have money left in the bank. Why, he would be our hero right now and long gone from Windsor as Mayor, when the chickens came home to roost.

I know you think I am just being foolish but I'm not. It wouldn't surprise me if, as part of the Detroit/Windsor Tunnel deal, the two City Governments were not made aware of what happened with the toll road in Chicago and the Indiana Turnpike by their financial advisers.

Just taking a look at Chicago, since that City's Mayor is a hero of our Mayor. They received $1.8 billion when they leased their toll road, a sum considerably greater than they ever expected to receive. That kind of money has to brighten the eyes of any Mayor in any city.

That upfront P3 money could be used to pay down debt, reduce taxes in future years, be set aside for special projects, used for reserves and so on. My guess is that it would burn a hole in someone's pocket in Windsor and we could squander it building shovel ready lands at the airport for developers at taxpayer expense.

Doing a bit of research and looking back at Chicago and its rating history, in the 1990s it had a fairly poor rating very similar to Windsor's previous AA- rating. In fact in 2004, one of the major rating services dropped their rating to negative. After the P3 toll road deal was completed and Chicago's bank account was filled up to brimming, their rating boosted upwards to positive. There is no doubt that the P3 deal was very much responsible in the ratings services increase of the credit rating of that city.

If it can be done for Chicago, it can be done for Windsor too can't it. Eddie just has to copy what was done there. It would not surprise me if he is too.

So no need to worry, no need to fuss. Our AA rating as far as investors are concerned really has nothing to do with what is going on in Windsor right now. It all has to do with what Eddie is going to do with P3 deals in the future. And how much money he will get for the assets.

And in case you still do not believe me... take a look at the Purchasing Bylaw that was changed right after Eddie Francis became Mayor.

• "Sole Source" means the purchase of a good and/or service where there is only one available supplier of that good and/or service that meets the needs or requirements of the City of Windsor.
  
• SOLE SOURCE PURCHASE
  32. (1) A Sole Source purchase may be used for the purchasing of goods and/or services for Contracts of any Contract value, in the following circumstances:
• (i) Where a public/private partnership exists.

With Eddie in control of the Tunnel and the Airport corporations, it's a slamdunk for him.

There, now you know it all. Shhhhhhhhh keep it between us. You, dear reader, don't want to be branded as a Windsor "enemy" do you.