Fiscal restraint at Fresno City Hall is being hailed by Mayor Lee Brand and City Manager Bruce Rudd for increases in the city’s credit ratings from two major rating firms – changes that are expected to save taxpayers more then $35 million in interest over the next 22 years.
Some of those savings, Brand said, could go toward more police, firefighters, parks and other city services.
Both Moody’s Investors Service and Standard & Poor’s announced Thursday that they had raised the ratings for a variety of bonds issued by the city. Standard & Poor’s bumped Fresno’s credit rating from a BBB- to A+, and assigned an A rating to about $120 million in bonds being issued this year to refinance older debt. The A+ credit rating indicates that the city has a “strong capacity to meet its financial commitments,” according to the company.
Similarly, Moody’s assigned a Baa1 rating to the refunding bonds and affirmed the city’s overall A3 credit rating. The Baa1 bond rating is considered a medium-quality investment grade with moderate credit risk for investors for the issuance, while the overall A3 credit rating for the city suggests upper-medium investment grade with low credit risk.
The two rating firms followed Fitch Ratings, which last fall upgraded the city’s overall issuer rating from BBB+ to A.
Just four years ago, Time magazine and other publications were predicting Fresno was going to go bankrupt. We’ve proven them all wrong.
Fresno Mayor Lee Brand
“Just four years ago, Time magazine and other publications were predicting Fresno was going to go bankrupt,” Brand told reporters Monday. “We’ve proven them all wrong.”
Brand said the turnaround was due to “strong leadership in combination with strong fiscal policies adopted by the (City Council) over the past eight years and budgetary performance over the last few years.
“These must continue to maintain these ratings,” he added.
About $89 million of the bond refinancing is for Fresno’s general fund – the pot of discretionary money from which most of the city’s everyday bills are paid. Reducing interest costs through the sale of those bonds is expected to save about $26 million, or about $1.8 million annually, over the next 15 years. While it’s a small amount compared to the overall 2017 general fund budget of about $293 million, “it’s a start,” Brand said.
“It’s money for police officers, firefighters, streets, curbs, gutters, potholes, parks, trails,” Brand added. “There’s a lot of money that the city’s going to need to meet the demand for city services.”
In Standard & Poor’s rating announcement, analyst Li Yang said “the raised rating reflects our view of the city’s substantial improvements in its financial management policies and practices, elimination of its structural operating deficits … and restoration of its available general fund to strong levels.”
Yang also cited clean auditor reports for the past three fiscal years.
Moody’s also mentioned the city’s improved financial results in its ratings upgrades that affect almost $360 million in bonded debt. “The upgrades reflect continued, meaningful improvement in the city’s fundamental economic profile, with ongoing growth in taxable property values, sales tax collections and employment.”
City Manager Bruce Rudd described the ratings upgrades as “one of my proudest moments in my 41 years with the city.”
“We’ve come from the edge of financial collapse to now, amazingly enough, a five-notch credit rating increase in four short years” because of fiscal discipline at City Hall, he added. “We welcome the news … but while (the ratings firms) applaud our fiscal strategy, they made it very clear that if we deviate from that path, we could very well see our credit rating go down.”
Standard & Poor’s bump for the city’s overall credit raised the rating from BBB- – where it had lingered since 2013 – to A+, leapfrogging intermediate ratings of BBB, BBB+, A- and A.
Fresno currently has about $864 million in bonded indebtedness, City Controller Michael Lima said. The $120 million in new bonds expected to be sold in April to refinance older debt is expected to reduce the city’s effective interest rate from “a little over 5 percent” to about 3.75 percent, he added. “It doesn’t sound like a lot … but it adds up quite substantially.”