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Flagstaff’s S&P and Moody’s Ratings High

The City has received ratings of AA/Aa2 from Standard and Poor’s and Moody’s Investors Service, respectively, on the general obligation bonds the City will issue in several weeks..  These ratings are the second-highest category available, one category lower than “AAA/Aaa” and are reflective of the City’s strong financial position, particularly in today’s economic environment.  These are the same ratings the City has held for the past three years.

Both agencies site the City’s strong reserve levels, good fiscal management as well as low debt burden in their evaluations. (Moody’s copy attached). While S&P revised their rating outlook to negative given external economic factors and a drawdown in fund balance, as stated in their rationale, should the City maintain its stabilized results in 2012 and if the economy does not deteriorate further then the negative outlook would be amended back to stable at their annual review.

These strong ratings combined with the current, historically low levels of interest rates will result in the City achieving its lowest level of borrowing cost ever.

The continued budgetary imbalance is language S& P uses to indicate the fund balance is declining, even if it is a planned reduction as noted above.  The City is statutorily required to balance it’s’ budget on an annual basis and has done so.  The City has reduced service and programs along with their related expenditures to assure that the Fiscal Year 2012 budget does not have a structural deficit.

 

The revenue environment constraints are a result of uncertainty at the State level as the State still needs to reach a structural balance.

 

In a presentation by Moody’s at the August 2011 Government Finance Officers Association of Arizona conference, Moody’s noted that they have had a negative outlook on several state and local governments for three years, and that generally downgrades have outpaced upgrades for 10 consecutive quarters. The maintenance of the City’s ratings at current levels is an accomplishment that will directly lower the City’s cost of borrowing.

 

 

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