Moody’s Investors Services has given the city of St. Charles an Aa1 credit rating, one of the highest bond ratings possible and which, according to Investopedia, is among the highest ratings given on debt.
“This rating signifies that there is little to no risk of default … Investors or policyholders can rest assured that their money is secure with this rating,” Investopedia states.
“This is great news,” said St. Charles Finance Director Chris Minick. “This report provides independent verification that the fiscally conservative policies we have enacted during this recession have worked to maintain a strong financial footing amid difficult economic conditions.”
Moody’s Investors Service is one of the world’s leading credit rating, research and risk analysis firms. Investors use ratings by companies such as Moody’s to gauge the risk of an investment. That plays an important role for cities, which borrow money by selling general obligation bonds to finance public works projects, for example. If a city has a low bond rating, that indicates investors have a greater risk of losing their investment; that in turn affects the interest rate the government pays to issue those bonds. Cities with high bond ratings are considered low-risk investments and receive lower interest rates on their general obligation bonds.
According to a release from the city, Moody’s issued the Aa1 rating for St. Charles in a report released Sept. 20. Aa1 is the second highest rating offered by Moody’s and is one the city has maintained since 2010.
Moody’s conducted an analysis of the city as part of a $9.035 million bond issue to help fund construction of the Red Gate Bridge and the replacement of trees infested by the emerald ash borer. The city also is refinancing $13.215 million of existing debt to take advantage of lower interest rates that will save the city more than $125,000 annually.
In a release announcing Moody’s rating, the city said that in recent years, the city has taken advantage of historically low interest rates to borrow funds for capital projects. In doing so, the city confines long-term borrowing to a time period not to exceed the useful life of the equipment or project. This city also has refinanced several prior bond issues, generating $2.85 million in cash flow savings through 2025.
“We are dedicated to using debt wisely,” said Minick. “We are also committed to monitoring the financing environment to take advantage of the interest rate environment and minimize borrowing costs.”
According to the release, the Moody’s report states that the city's financial operations remain sound following prudent management practices during the economic downturn. Further, the report characterizes the city of St. Charles as having “strong financial operations supported by solid reserves despite economically sensitive revenue pressures,” among its strengths.
The city’s 2011 undesignated reserve level in the General Fund was $16.2 million or 41.2 percent of revenues. This reserve level remained unchanged at the end of fiscal 2012, reflecting balanced financial operations in the General Fund.
While generally an optimistic report, Moody’s notes the city does face some challenges that include:
- Taxable valuations declining.
- Slightly above average debt burden with plans to issue debt.
- Dependence on economically sensitive revenues.
- Structurally imbalanced operations in the tax increment financing and electric funds.