Tonight the Unified Government Commission heard at a special session that its credit rating had been downgraded by Moody’s.
David McGillivray, chairman of Springsted Public Finance Advisors, explained that Moody’s had downgraded the UG from Aa3 to A1 rating, while Standard and Poor’s had kept the UG’s bond rating at the same level, AA. Both were also listed as stable.
The discussion of the credit rating came on the same day that the UG has several issues of temporary notes and general obligation improvement bonds scheduled. Lew Levin, UG chief financial officer, stated the bond sales went well, and the UG received a good interest rate. Because of the low interest rates everywhere, the downgrade of the rating did not have as much of an effect as it otherwise might have had, according to the officials.
The downgrade from Moody’s is one notch lower than previously, and it is still a good rating, according to the financial advisers.
McGillivray explained that in 2011, Moody’s assigned the UG a rating with a negative outlook, that was sending signals that the UG needed to improve in certain areas, particularly in the fund balance.
He said the credit rating agencies place the most emphasis on the general fund balance and revenue diversification, and also put some emphasis on the community’s socioeconomics, including household income, tax base growth and stability, and population and development trends. The credit rating agencies expressed confidence in the UG’s governance and management, he said.
Moody’s considers Kansas governments’ dependence on sales tax revenues as somewhat fluctuating, and not as stable as the property tax, according to McGillivray.
In some ways, the Moody’s decision was driven by the UG’s fund balance, he added.
It was interesting, he said, that two agencies could look at the same government and come up with different conclusions.
Levin said he was hopeful that the UG will have a slight increase in the fund balance for the 2015 budget.
Mayor Mark Holland said the UG has already taken care of the fund balance problems and that Moody’s was looking at 2013 information, the last audited reports available, and the steps they took in 2014 and 2015 have not yet been reflected in those reports.
“For us to get through the recession with just a modest downgrade and retain the other is very positive,” Mayor Holland said.
He said the UG knew last summer that it was facing a downgrade and took aggressive action to deal with it.
“It’s not great news, but good news,” he said. “Because interest rates are so low, the penalty is not like anything it would have been in other years. We need to continue to protect that credit rating because it impacts us long term.”