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Education and health providers drawn into Ontario's credit-rating woes

Ten meditative spaces by Lisa Rochon: Trinity College quadrangle, trefoil landscape, a hidden inner sanctum, by Gh3 Architects.

Moe Doiron/The Globe and Mail/Moe Doiron/The Globe and Mail

Seven prominent institutions, including universities, hospitals and school boards, have been drawn into the Ontario government's fiscal woes, putting their credit ratings at risk and reflecting the stubborn provincial deficit's dangers for the broader public sector.

The University of Toronto, the Hospital for Sick Children, the City of North Bay and a corporation representing 55 school boards in Ontario are among the entities whose credit outlook has gone from "stable" to "negative" because they are "linked" to the province, the influential credit-rating agency Moody's said.

These three, along with the University of Ottawa, the Ontario School Boards Financing Corp. and the Ontario Infrastructure and Lands Corp., could all face higher costs for their own financing if Moody's or other ratings agencies downgrade their debt.

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By changing the outlook on those ratings in lockstep with that of the province, Moody's is signalling the extent to which the so-called MUSH sector – municipalities, universities, schools and hospitals – is linked to the financial health of the province.

"This is a very useful reminder that this goes well beyond the government of Ontario and stretches into the broader public sector," Ontario Finance Minister Dwight Duncan said in an interview on Sunday. "It's going to be incumbent on all of us to work together to get back to balance according to the time lines we've laid out."

A ratings downgrade would make it more difficult for these public institutions to attract buyers for their bonds. It would also make it more expensive for them to borrow money at the very time when many hospitals are already struggling with operating costs that exceed their budgets and when many Canadian universities have shortfalls in their pension plans.

Universities are under pressure to plug those holes at the same time they are dealing with static government grants, limits on tuition hikes and shaky endowment returns. The University of Toronto's pension plan has been the hardest hit, with a deficit of more than $1-billion.

"The change in the outlook for the Province of Ontario has exposed concerns over the standalone credit strength of the university, including significant unfunded pension liabilities and continued pressures on salaries and benefits," Moody's said in a statement. However, it added, a change in the province's rating may not necessarily result in a downgrade of the university.

U of T officials were not available to comment. U of T recently launched the largest university fundraising campaign in Canadian history, setting an ambitious target of $2-billion.

The other university mentioned in the Moody's update, the University of Ottawa, has issued bonds to raise funding to expand and modernize its facilities. University spokesman Vincent Lamontagne said on Sunday that the negative outlook reflects the financial challenges the province is facing.

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"The University of Ottawa is preoccupied by the Government of Ontario's future capacity to finance postsecondary institutions adequately and by the impact that future cuts in funding could have," he said in an e-mail.

The province's debt stood at just under $237-billion as of March 31, 2011, representing just under 40 per cent of Ontario's gross domestic product. Moody's said that it is concerned about Ontario's ability to stabilize its accumulating debt given the recent slowdown in the province's economic growth.

Sick Kids Hospital spokeswoman Suzanne Gold said the hospital issued debt in 2009 to help raise money to build its new Research & Learning Tower.

"Moody's decision to change its credit outlook for Ontario had an immediate knock-on effect on Sick Kids' rating because our rating is so closely tied to the province's," she said.

But the hospital does not intend to borrow further funds, so any change to its credit rating would not have an impact, she said. While many hospitals in Ontario are in deficit, Sick Kids generated a surplus of $6.9-million in fiscal 2011 on an operating budget of $698.6-million, thanks in part to providing services to patients from outside Ontario.

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About the Author

Karen Howlett is a national reporter based in Toronto. She returned to the newsroom in 2013 after covering Ontario politics at The Globe’s Queen’s Park bureau for seven years. Prior to that, she worked in the paper’s Vancouver bureau and in The Report on Business, where she covered a variety of beats, including financial services and securities regulation. More

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