Rationale

We expect Windsor's strong economy and prudent financial management practices will support healthy operating surpluses and robust liquidity, which in turn will allow the city to continue paying down its tax-supported debt during the outlook horizon. As the global spread of COVID-19 continues, we expect the city will experience a deterioration in economic activity and increased budgetary stresses in 2020. While the impact of the pandemic will depend on its rate of spread and duration, S&P Global Ratings' baseline assumption is that the pandemic will peak about midyear globally (see "The Escalating Coronavirus Shock Is Pushing 2020 Global Growth Toward Zero," published March 30, 2020). Therefore, we expect the city's economic activity and financial performance will rebound starting in 2021 and continue to contribute to a solid track record of good fiscal results. In our base-case scenario, we expect tax-supported debt to decline to less than 7% of operating revenues by 2022. At the same time, we believe Windsor will maintain a higher level of exposure to the manufacturing sector, in particular the auto industry, which adds risk to its economic profile, in our view.

Strong management oversight and institutional strength continue to support the city's financial position.

We expect that, in the outlook horizon, Windsor will continue to exhibit strong financial management, with a stable and highly experienced management team. The city has demonstrated a strong ability to find cost efficiencies and alternative delivery methods to adhere to the council's fiscal decisions. The council has taken action to increase the tax levy, which the city has historically been averse to doing. The operating and multiyear capital budgets, which we view as realistic, are timely and reflect the goals in the city's long-term financial plan. Windsor's very prudent and risk-averse debt policy has allowed the city to reduce debt levels for the past several years and to increase both financial sustainability and its focus on detailed cash flow planning to support operations.

Windsor continues to diversify its economy, mainly in education, health and life sciences, tourism, government services, and other manufacturing subsectors. However, we believe a downturn in the auto industry could cause considerable economic distress. Despite Windsor's efforts to focus on population retention and job creation, attracting and retaining a skilled workforce remains a challenge for the city.

Windsor operates in what we deem to be a very predictable and well-balanced local and regional government framework that has a high degree of institutional stability. Although provincial governments mandate a significant proportion of municipal spending, they also provide operating fund transfers and impose fiscal restraint through legislative requirements to pass balanced operating budgets. Municipalities generally have the ability to match expenditures well with revenues, except for capital spending, which can be intensive. Any operating surpluses typically fund capital expenditures and future liabilities (such as postemployment obligations and landfill closure costs) through reserve contributions.

Tax levy increases will support revenue growth, while infrastructure projects continue to push after-capital results into a modest deficit.

We expect that sustained levy increases will help generate strong operating balances averaging about 8% of operating revenue from 2018-2022. Management estimates COVID-19 could have a financial impact of more than $20 million in 2020. This impact comes from a decline in transit revenue, fees, and penalties, as well as increased costs due to