By Lora-Marie Bernard
Moody’s Investors Service has upgraded the City of League City’s bond rating from Aa2 to Aa1, the second highest rating on the Moody’s scale.
“This important achievement could not have been realized without the commitment of the City Council to maintain the highest standards for financial operations,” said Rebecca Underhill, Assistant City Manager.
According to the Moody’s Investor Service press release, the upgrade to Aa1 reflects the rapidly growing tax base supported by a stable economic profile, and a consistent history of favorable financial management evident by ample reserves. Additional considerations include the city’s debt profile which remains affordable, despite being higher than peers.
In fact, League City will sell $17,025,000 in bonds next week and the press release states it is unusual for Moody’s to upgrade a rating in the midst of a sizeable outstanding debt. It maintains a $227 million in general obligation limited bonds.
However, several factors can cause a higher rating. Some of those factors include: Substantial reduction of debt burden; a significant tax base expansion and a considerable improvement of reserves.
By contrast, factors that can lead to a downgrade include: increase in debt burden without corresponding tax base growth; substantial depletion of reserves or a material weakening of formal financial policies; sustained, multi-year assessed value contractions or the status of its legal security.
For example, last year, Moody downgraded the City of Houston’s rating to Aa3 and stated that the weakening economic and financial performance that it blamed on the prolonged dive in oil prices. It also reflected the city’s high fixed costs, large unfunded pension liabilities (among the highest in the nation), as well as property tax caps.
This rating was given before the state approved the city’s pension reform measures.