Cedar Rapids again secures top bond rating, but with negative outlook

For the 41st year in a row, the city of Cedar Rapids has secured the top Aaa bond rating from Moody's Investors Service.

City Council member Kris Gulick, chairman of the Finance and Administrative Services Committee and recent past president of the Iowa League of Cities, said Friday that the city's ability to retain a Aaa bond rating for general obligation debt is an “exceptionally positive” accomplishment.

Gulick said only 8 percent of cities in the nation - about 190 - have earned an Aaa bond rating from Moody's Investors Service, and many of those are smaller than Cedar Rapids. In Iowa, only Ames, Iowa City and West Des Moines have Aaa bond ratings in addition to Cedar Rapids.

Only two dozen American cities with populations between 80,000 and 200,000, including Cedar Rapids, have Aaa bond ratings, Gulick added.

“It's a pretty exclusive class,” he said. “I don't think people understand how exclusive a group that is.”

A top bond rating translates into a lower interest rate on debt issued by the city.

In its bond-rating report, Moody's pointed to three of Cedar Rapids' strengths: the “solid economic indicators” that the city enjoys as a “regional hub of economic activity and employment;” the city government's ability to maintain “sound financial operations and overall liquidity despite multiple years of spending to repair flood damage;” and the city's “moderate flexibility” in raising revenue.

The Moody's report comes with the same caveat as last year - “a negative outlook” - which the rating agency attributes to the city's link to the federal government and the federal government's “weakened credit profile, as well as the “risk” that the city has taken on by owning a hotel and convention center. Gulick said Moody's doesn't like cities owning “non-core assets” such as hotels and convention centers.

Gulick said the city is in better shape now than a year ago because the renovation of the hotel and arena and construction of the convention center are nearly complete, so the risk associated with the project is nearly gone. In addition, he said the city is securing annual revenue commitments for naming rights and sponsorships for the complex at a rate above what has been projected.

Even so, he said it will be difficult for the city to move beyond the negative outlook as long as it owns the hotel. The city wouldn't have bought the hotel in 2010 and closed it for renovation if it hadn't been in serious decline, Gulick added.

City Finance Director Casey Drew on Friday said the city will sell $35.5 million in general obligation bonds and $12.5 million in revenue bonds next week.

As in recent years, the city has secured a bond rating of Aa2 - two steps below Aaa - for its upcoming sale of revenue bonds. Revenue bonds, which are supported by revenue of a particular enterprise such as the water or wastewater operation and not by the full backing of government, typically come with higher risk and a lower bond rating.

With next week's debt sale, the city will have $341.7 million in outstanding general-obligation debt, all with an Aaa bond rating and negative outlook, the Moody's report notes. The city is not permitted to have outstanding debt in excess of 5 percent of its valuation. Cities' revenue-bond debt is not counted in that requirement.