Credit rating agency Moody's gave the City of Yellowknife a brighter financial outlook this week, saying promises of federal funding had improved medium-term prospects at City Hall.
Last year, the same agency changed Yellowknife's credit outlook to negative, based on what might happen if council went ahead with a planned new aquatic centre and a water pipeline replacement without getting funding from anywhere else.
The City is still pursuing both projects but has since secured $26 million in federal funding for its new drinking water pipe.
Changing Yellowknife's financial outlook from negative to stable, Moody's said the City was now likely to accumulate less debt than previously anticipated.
"Moody's now expects that Yellowknife's net debt will only rise modestly to around 60 percent of operating revenue by 2021 (from 50 percent in 2018) to finance the replacement of the city's aging water intake pipeline and its new aquatic centre," the agency wrote in a memo on Friday.
Yellowknife currently has an AA2 issuer rating and an A1 baseline credit assessment – having been demoted from AA3 to A1, a worse assessment, last year.
"Moody's expects that Yellowknife will continue to generate solid annual surpluses, translating into dependable operating cash flow generation which has been used in the past to provide pay-as-you-go financing for capital expenditures," the agency's latest assessment read.
"The city's credit profile is pressured by economic and demographic factors from a narrow economic base and mature primary diamond industry. Although the regional economy generates high employment rates and GDP per capita, it has experienced net outmigration in recent years and a high cost of living.
"The city's focus on maintaining below-inflation increases in property taxes widens a mismatch between revenues and expenditures in the medium term, and constrains the city to rely on non-property tax revenue increases (including land sales, user fees and government transfers) and expenditure controls in order to maintain balanced outcomes."
Last year, the City's director of corporate services – Sharolynn Woodward – said ratings from Moody's were used to "help determine where we fit compared to other municipalities … and how well-managed our finances are."
Last year's downgrading, Woodward said at the time, reflected "the worst that might have to happen" if Yellowknife couldn't find any extra money for its major projects.
Moody's said its current assessment of Yellowknife is in part supported by the knowledge that the territorial government would almost certainly provide "extraordinary support" if something were to happen to the municipality's finances.
For the credit rating to improve, Moody's said the City would have to show better financial management "including a reduced reliance on non-property tax revenue measures," reduce its debt, or begin to demonstrate population growth alongside improved economic forecasts.