Montreal budget lowers debt burden one year ahead of schedule

The administration of Mayor Soraya Martinez Ferrada has chosen to wrestle down Montreal’s debt beast in its first year in office, scraping additional funds from the city’s $7.67-billion 2026 operating budget to pay down loans and return the city to a healthier debt burden one year earlier than planned by the previous administration.

“The credit card of the city was maxed out, actually over the limit, and the first thing we decided to do is bringing Montreal’s debt ratio (back) to 100 per cent,” Martinez Ferrada said at a press conference Monday to table her administration’s first budget.

“This is an act that is responsible. It signals credibility. It’s important for the future of the city.”

The city borrows heavily to finance billions of dollars in capital works projects, such as construction of buildings, roads and bike paths. The interest and capital payments on those long-term loans are paid out of the city’s annual operating budget.

In 2019, the previous Projet Montréal administration of Valérie Plante breached a longstanding internal city policy that had capped net debt at no more than 100 per cent of the city’s annual operating revenue.

Montreal had established the 100 per cent ratio in 2004 as a benchmark for sound financial management. However, the Plante administration asked city council to temporarily suspend the policy and allow the debt to rise to as much as 120 per cent of revenue for a period of time to finance greater capital investments. The Plante administration pledged to return the city to a 100 per cent net debt-to-revenue ratio in 2027.

However, Martinez Ferrada’s new administration at city hall has chosen to inject more money into debt payments and return to the 100 per cent net debt-to-revenue ratio  this year — one year ahead of schedule. To do so, the city is, among other things, increasing cash payments for capital works projects by $15 million in 2026.

City executive committee chairperson Claude Pinard said it was essential to return to a 100 per cent debt ratio a year early because the city’s debt costs Montrealers in terms of interest on loans.

The city debt has risen by $1 billion since 2019, he said. That higher debt is responsible for the $87.3-million increase in debt service payments in 2026, Pinard added.

The city’s gross debt servicing costs will be $1.27 billion, gobbling up 16.6 per cent of the operating budget in 2026. The amount is paid by Montreal and the island suburbs and includes the debt costs of the Société de transport de Montréal. The $1.27 billion represents a $87.3-million increase over gross debt servicing payments in 2025.

As of Dec. 31, 2024, the city had $11.8 billion in outstanding debt, to which it was estimated that the previous administration would add $1.4 billion in new loans in 2025. The 2026 budget forecasts another $1.09 billion in new loans this year, but $172 million less in outstanding loans overall.

International credit-rating agencies have maintained Montreal’s credit rating with a stable outlook for years despite flagging the city’s debt burden.

The city’s net debt-to-revenue ratio had fluctuated between 104 and 108 per cent of revenue since peaking at 114 per cent in 2021, in the midst of the pandemic. It is expected that Montreal ended 2025 with the ratio at 103 per cent. The city’s annual financial statements will be tabled in the spring.

In the last couple of years, the Plante administration had begun slowing the growth of the city’s debt, including by using more cash from its operating budget to fund capital projects and relying less on borrowing.

lgyulai@postmedia.com

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