Montreal Chips Away At Three Decades of Debt

THE city of Montreal is digging itself out.

Not from the first winter snowstorm, but from under a mountain of debt, much of it caused by glamorous megaprojects of the past 30 years, especially Expo 67 and the 1976 Olympics. And because the city will have to borrow almost $1 billion over the next decade to pay for everything from new sidewalks to pensions, it has had its credit rating reduced.

The Canadian Bond Rating Service, based in Montreal, has lowered the city of Montreal's bond rating from AA to A+. Compared to Toronto it means the city will pay an extra .375 of a percentage point when it borrows.

Montreal, with more than a million people within city limits, has slow or no population growth. Within the last decade more than 200,000 English-speaking people have left Quebec, largely because of restrictive language legislation. Most of them lived in Montreal. Now the French middle class is leaving too. "The middle class Francophone is heading for the suburbs," says a Montreal area politician. And so are a lot of businesses, partially because of a business tax which has just been increased.

But the report of the bond rating service is not all bad news. It says Montreal's current administration has been getting its financial house in order, especially by reducing debt which is payable in foreign currencies.

"The percentage of debt denominated in foreign currency is no longer a risk," said Ihor Kots, the author of the report. "The quality of life in Montreal, tied with the cities of Seattle and Melbourne, is the best in the world." The real estate slump here has left lots of bargains. "Of the three largest cities in Canada, Montreal offers the affordable [residential housing] prices," the study says.

THERE is a reason housing is cheap, of course, and it is Montreal's sluggish economy. The report details a list of problems, including political uncertainty caused by Quebec's on-again off-again flirtations with independence, language laws, and high unemployment brought on by the death of rustbelt-type industries.

The bond rating service also points to the heavy spending of former Mayor Jean Drapeau, who spent his resources on the World's Fair in 1967, the Olympics in 1976. Roads, sewers, and the financing of the city's pension fund were ignored. He did build Montreal's subway system, the most complete in the country.

"As Montreal focused on Expo and the Olympics it neglected infrastructure and now there's a lot of catch-up to do," says Mr. Kots. His report points out that the budget is operating with a small surplus. The new mayor, Jean Dore, resisted the temptation for extravagant spending to celebrate Montreal's 350th anniversary this year.

Montreal's politicians have been critical of the downgrading, pointing out the Olympic debt is almost paid. "The Olympic debt is going to be paid off in two years," says long-time city councilor, Nick auf du Maur.

But Lea Cousineau, Montreal's chief administrator, said the downgrading was "not a surprise." The bond rating report agrees with the city that it is on the road to fiscal health.