Getting funds often requires good credit rating. The Fort Worth City Council received an informal report at its Tuesday work session on where the city stands with a summary of the ratings received on bonds issued under the city’s 2019 debt plan.
As part of the 2019 debt plan the city’s financing team has been meeting with rating analysts from Moody’s, Fitch, Standard & Poor’s, and Kroll over the past several weeks. The city sought ratings for upcoming bond sales that included Series 2019 General Purpose Bonds, Series 2019 Tax Notes, and Series 2019 Water and Sewer Revenue Bonds.
The presentation this year focused on historical and projected financial
performance, the economy, operating highlights, and pension reform.
“In many cases they got better, which is the whole intent,” City Manager David Cooke said. “One of the reasons for solving the pension problem was to get us off some of these negative outlooks that the ratings agencies had put us on.”
An overview of the rating outcomes featured:
General operations rating – Aa3, revised outlook to stable from negative. The city continues to be constrained by a high unfunded pension liability and weak annual pension contributions, despite reform. However, the credit profile is supported by the city’s substantial financial resources to afford increasing pension costs due to strong economic growth, as well as the legal ability to reform benefits further, and the demonstrated political will to both exercise this legal right and to increase contributions. The stable outlook reflects an expectation that the city’s financial profile will remain healthy over the near term.
Water rating – Aa1 with a stable outlook (no change). Key credit strengths include a large service area that extends well beyond city limits with a growing customer base, strong fiscal management and capital planning, healthy debt service coverage and low direct debt profile. Key credit challenges include below median liquidity for the rating category, and weak legal provisions. The stable outlook reflects an expectation the system’s strong fiscal management and proactive planning practices will continue in the near term, including implementation of timely rate adjustments.
GO rating – AA+, revised outlook to positive from ‘stable. Key credit strengths highlighted are strong financial management policies and an experienced/effective management team; robust economic growth is supported by a diverse, growing tax base, and low unemployment rates; strong financial reserves and liquidity, and conservative budgeting practices. Key rating concerns include ability to absorb increasing pension contributions while maintaining financial strength, the reliance on sales tax for operations exposes the revenue base to economic fluctuations, deviation from the city’s practice of conservative budgeting would increase credit risk. The positive outlook reflects a recognition of the robust and growing resource base, along with a continued strong financial profile and implementation of pension reforms.
GO rating – AA, with stable outlook (no change). Adequate economy, with access to a broad and diverse metropolitan statistical area; very strong management, with strong financial policies and practices; weak budgetary performance, with operating deficits in the general fund and at the total governmental fund level in fiscal 2018; very strong budgetary flexibility, with an available fund balance in fiscal 2018 of 16% of operating
expenditures; very strong liquidity, with total government available cash at 85.8% of total governmental fund expenditures and 10.0 times governmental debt service, and exceptional access to external liquidity; very weak debt and contingent liability profile, with debt service carrying charges at 8.6% of expenditures and net direct debt that is 122.1% of total governmental fund revenue, as well as a large pension and other postemployment benefits obligation.
Water Rating – AA+ with a stable outlook (no change). Willingness to adjust rates, including passing through wholesale cost pressures, will be key to rating stability. The city’s continued economic growth and diversity, limiting cyclicality from sectors such as energy and commodities, as well as a housing market not viewed to be in a bubble were enhancements.
GO rating – AA+, with a negative outlook (no change). The rating reflects an expectation of strong operating performance through the economic cycle, as well as solid economic and revenue prospects. Fitch states they maintain the negative rating outlook to analyze over the coming review cycle the impact of recent pension reforms on both expenditure flexibility and operating performance.
Water Rating – AA with a stable outlook (no change). Key rating drivers included a stable financial performance, improving liquidity, average direct debt, increased capital spending, sound revenue defensibility, wholesaler pressures, a large and diverse service area.
City officials said they will continue with the plan of finance of the 2019 debt plan and related bond sales with final closings scheduled on July 16.
“We take this very serious. I don’t want to say we go to any lengths, but to significant lengths to see some improvements for our citizens,” District 7 Councilman and Mayor Pro Tem Dennis Shingleton said.
District 3 Councilman Dr. Brian Byrd recalled praise for the city after he sat in on one of the credit rating meetings.
“When we were able to show them and tell them what went on with getting this pension fixed, they were aghast and exceedingly complimentary,” he said.
In addition to the rating reports, a Moody’s commentary discussing property tax reform passed by the Texas legislature was provided. Senate Bill 2 is anticipated to take effect on Jan. 1, 2020, which Moody’s believes will limit revenue-raising flexibility to result in negative credit implications for the bulk of local governments.