Why is this important?
In their simplest form, a bond rating or credit rating is a grade given to bonds or an institution that reflects the credit quality of the issuer and the specific issuance of debt. The three main credit rating agencies include Fitch, Moody’s and Standard & Poor’s. Each of these firms provide ratings based upon their assessment of the city’s ability to meet our overall financial obligations in full and on time. The quantitative portion of the rating provides insight into a group of financial ratios or metrics that includes: debt service coverage ratio, total resources to total debt, expendable resources to debt, and debt service to operations. Qualitative characteristics of a rating traditionally include the quality of governance and management, revenue streams and the diversification thereof, and the city’s ability to raise additional revenue if needed. The highest rating available from S&P is a “AAA”, Moody’s is a “Aaa”, and Fitch is a “AAA”. As part of our comprehensive financial programs, the City issues debt to fund a portion of our five year Capital Improvement Programs. The issuance of debt, or public securities via the capital markets requires the city to obtain bond ratings.
In 2017, the city received a one notch downgrade from Moody’s. Standard & Poor’s and Fitch have left their ratings consistent over the past three years. Moody’s noted in their report that the city’s downgrade reflects our large and growing unfunded pension liability and growing fixed cost burden, which includes annual pension, other post employee benefit expense and debt service requirements. Moody’s rating and outlook also reflects positive attributes, including the city’s large and diverse tax base that is expected to remain on a growth trend, average socioeconomic indices considering the large metro area, and stable financial performance with adequate reserves. Fitch noted the “AA+” rating reflects their expectation of the city’s strong operating performance throughout the economic cycle, as well as the city’s moderate long-term liability burden. They note that the city has solid economic and revenue prospects and significant control over revenues and spending, and has recently demonstrated strong budget management that Fitch expects to continue. Fitch also noted that the recent results indicate significant progress on reporting and financial control matters, and that the city’s revenue performance has been healthy since the recession. Standard & Poor’s documented their assessment of the city’s “AA+” rating as being attributable to a series of factors including strong management with strong financial policies and practices, strong budgetary performance and flexibility, and very strong liquidity.