The top credit-rating agency has upgraded Dayton’s general obligation bond evaluation, likely reducing the city’s borrowing costs and reflecting confidence in the government’s financial management and stability.
Standard & Poor’s on Thursday raised its rating of the city’s long-term debt to AA from AA-. The last increase from S&P was in 2009, when the city’s rating was elevated from an A+.
Dayton’s long-term debt assessment is better than Toledo (A-) and Canton (A+). It’s also better than Cincinnati and Akron, which are AA-, but not as good as Columbus (AAA).
The upgrade comes just months after Dayton voters authorized making the final part of the city’s income tax permanent, which elected leaders said would strengthen the city’s credit position.
The city next week expects to issue almost $6 million in bonds to pay for multiple capital projects. The new rating could result in the city paying a lower interest rate, potentially saving taxpayers significant money.
“The U.S. government is a AA+,” said Deputy City Manager Stanley Earley. “We’re one notch below the U.S. government.”
The local Dayton economy remains weak, which prevents the city from receiving a higher long-term debt rating, wrote S&P analysts.
But analysts said the city’s budget management and performance have been very strong, especially in regards to financial flexibility. The city has plenty of available cash reserves, and its debt service and management are solid.
Debt service accounts for about 5.3 percent of expenditures from government funds, and net direct debt is less than 54 percent of total government funds revenue, analysts said.
The city in recent years took a series of actions to stabilize its general fund budget, including staff reductions and hiring freezes.
This year, the city asked voters to make the final 0.5 percent of its 2.25 percent income tax permanent, which they approved, ensuring the city would continue to receive about $22 million annually in revenue.
City commissioners also approved a street lighting assessment, which is expected to generate $3 million annually, alleviating pressure on the general fund. The city expects to spend about $3 million out of its cash reserves this year.
“One of the things we’ve done is make the budgetary adjustments — sometimes reductions, sometimes changes — to make sure we’re always operating within our revenues and maintained adequate reserves to protect ourselves from shocks,” Earley said.
S&P increased Dayton’s general obligation bond rating in 2009, citing the city’s “strong” financial management policies, moderate debt burden and diversifying economy. The rating was also based on recent jobs losses and forthcoming redevelopment projects. The city had an A+ rating from 2001 to 2009.
Moody’s Investors Service Inc. says Dayton’s general obligation debt remains at Aa2, which is also a high-quality rating.
Moody’s in 2010 increased Dayton’s rating two notches from A1, as part of an adjustment to its global rating system.
“The upgrade from S&P along with the retained AA rating from Moody’s is a huge achievement for the city of Dayton,” City Manager Tim Riordan said in a prepared statement. “These reports do not mean the city of Dayton is flush with cash, but they do mean that we are managing our resources well.”
S&P’s upgrade comes as the city prepares to issue a little less than $6 million in bonds to pay for capital improvements, including heating, ventilation and air-conditioning work at the safety building, as well as a new roof for the facility.
The bonds also will help finance the widening of South Main Street, reconstruction of parts of Smithville Road and Keowee Street and purchase new public works trucks and a ladder truck for the fire department, officials said.
The higher grade will reduce how much the city has to pay to service the debt, Earley said.
“It could save us a few thousand dollars or it could save us a couple hundred thousand dollars,” he said. “Given the environment, where a lot of cities saw a downgrade this year, this was a particularly positive statement.”
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