Cedar Rapids keeps top bond rating, with a caveat

CEDAR RAPIDS - On the eve of the city's largest-ever sale of new bond debt, Moody's Investors Service has assigned Cedar Rapids its top Aaa bond rating, which the city has maintained for nearly 40 years.

A top bond rating - Iowa City, Ames and West Des Moines are the only other Iowa cities where it's been granted - allows a jurisdiction to borrow money at more favorable interest rates. Nationwide, 197 cities - just 7 percent of those with bond ratings - qualify for the Aaa level, City Manager Jeff Pomeranz said.

“It's a very elite club that we're in, and it's something that's very important to our city,” he said. “Obviously, we're pleased to maintain our Aaa bond rating. The Moody's report is indicative of the financial strength of the city of Cedar Rapids' organization as well as the strength of our local economy.”

The ratings agency said the Aaa score reflects the city's large and diverse economy and its role as a regional service center. Moody's also credits Cedar Rapids' government with a “strong and stable” reserve in its general operating fund, “healthy financial flexibility” and a “manageable, though above average debt position with future borrowing anticipated in the near-term.”

In the days leading up to Monday's announcement, local officials had expressed some anxiety about the city's ability to retain its long-held top bond rating, in part because of the costs and unknowns related to the downtown hotel and convention complex now under construction.

And in fact, the agency's announcement did come with a caveat - “a negative outlook,” in Moody's terminology. The outlook reflects the risk associated with owning and operating the facilities, slated to open in 2013.

“The project binds the city to a long-term commitment that could pressure overall financial operations if the convention center complex does not perform as expected,” Moody's said. “We will continue to monitor the performance of the complex and the city's ability to successfully handle any challenges that may arise in its construction and operations.”

Pomeranz said the city has projections on hotel occupancy, room cost per night and the amount of traffic that the Convention Complex will attract as well as a strong partnership with Hilton, which will manage the hotel under the DoubleTree by Hilton brand.

“But there is some unknown out there,” Pomeranz said, adding, “... We think it's fair that the hotel be called on out as an area of potential risk.”

Finance Director Casey Drew said today's bond sale will raise Cedar Rapids' total outstanding general-obligation bond debt from $282 million a year ago to about $336 million. The new total will bring the city to within 74 percent of its debt limit.

Thirty miles to the south of Cedar Rapids, the city of Coralville last month saw Moody's downgrade its debt to A3 - six steps below Aaa - due, in part, to its need to subsidize the Coralville Marriott Hotel and Convention Center.