Moody’s Investors Service (Moody’s), as part of its annual surveillance of municipal debt for investors, recently conducted a review of its rating on the City’s outstanding Limited Tax General Obligation bonds.
As part of this review, City staff responded to in-depth questions about the City’s financial operations and reserves, the City’s tax base and local economy, City debt, pensions, capital planning and cybersecurity, and the stability of the City’s management team. After a thorough evaluation by its ratings committee, Moody’s decided to raise the City’s bond rating from “Aa3” to “Aa2”.
Moody’s stated that the new Aa2 rating reflects their view of significant improvement in the City’s financial and economic profile, including the City’s:
- History of structural balanced operations due to conservative management practices;
- Stable and strong reserves and liquidity levels;
- Favorable socioeconomic profile.
Moody’s noted that the City’s outstanding debt consists of “fixed-rate obligations,” and they described the debt as “manageable.” They added: “As a result of the City’s continued practice of conservative budgeting, it has been able to significantly improve its financial reserves and liquidity since its historical low levels in fiscal 2010 and consistently outperform budgeted projections.”
This ratings upgrade is the third upgrade in the past four reviews by Moody’s.
- 2016 Upgraded two notches from A3 to A1;
- 2017 Upgraded to Aa3;
- 2019 Upgraded to Aa2.
There are only two ratings above the City’s new Aa2 rating: Aa1 and Aaa.
The principal purpose of these types of ratings is to inform investors as to the City’s creditworthiness and ability to repay its outstanding bonds. While the City does not have plans to issue new debt, the ratings upgrade will help the City obtain lower interest rates, with a substantially lower cost to taxpayers, if the City decides to issue any bonds in the future. However, perhaps as important, the ratings upgrade also provides U.P. residents with some assurance, from a neutral, informed third-party expert, of the financial stability and efficiency of their local government.