Long-held Aaa bond rating remains in rearview for Cedar Rapids

CEDAR RAPIDS - Annual delight among city officials stopped a year ago when the city saw its Aaa bond rating slip one step to Aa1 after more than 40 consecutive years at the top.

This week, the city, as a matter of routine, reported that rating agency Moody's Investors Service once again has assigned the city the service's second-best rating of Aa1 as the city prepares to sell bonds to raise money for capital improvement projects.

In its written explanation, Moody's analysts state that Cedar Rapids has a large and growing tax base, is a regional economic center, and its city government has 'healthy” financial reserves with 'ample” flexibility to raise revenue.

On the down side, the city government has an 'elevated” if 'manageable” amount of existing debt, 'moderate” exposure from unfunded pension liabilities and a 'risk” associated with the ownership of a hotel and convention center, the Moody's report states.

Moody's states that the city could see an improvement in its bond rating if the city's economy improves, if there is sustained good performance of the hotel and convention center and if there is a moderation of the city's debt burden. Additional pressure could come to the city's bond rating if those items take a turn in the other direction, the report states.

City Council member Kris Gulick, chairman of the council's Finance and Administrative Services Committee, on Thursday said the Moody's report was an 'endorsement” and 'confirmation” that the city continues to 'the right things” in its fiscal operation.

Gulick said the report was similar to the report from a year ago, when Moody's lowered the city's long-held Aaa bond rating one step to Aa1, the second highest rating of 21 Moody's ratings levels.

Gulick said Cedar Rapids' Aa1 rating continues to keep the city in a very select group of cities across the country with the highest bond ratings. A year ago, Moody's changed how it rated cities, and Cedar Rapids was among longtime cities with Aaa bond ratings that slipped a rating level, he said.

The cities of Iowa City and West Des Moines retain an Aaa bond rating in Iowa.

Gulick, past president of the Iowa League of Cities, said Moody's likely will continue to note that the city owns a hotel, which is a 'non-core” city asset that always brings with it a level of risk, he said.

'But I think the report was positive even in light of that,” Gulick said. 'And they (Moody's) continue to provide us with good support - that we're doing the right things from a budget standpoint and we're being prudent managers of taxpayer dollars. And those are all positive comments.”

Moody's states that the city plans on selling $40.1 million in general obligation bonds on May 12, $25.7 million of which will be used to refinance 10-year-old city debt to secure more favorable interest rates to save the city money. The rest of the proceeds from the bond sale will be used for city capital improvement projects.

Casey Drew, the city's finance director, said the city estimates it will save $1.2 million by refinancing earlier debt.

After the bond sale, the city will have $317.8 million in outstanding general obligation bond debt, which is 65.9 percent of city's general obligation bond debt limit as set by state law, Drew said.

He said the city's policy calls for the city to keep debt under 80 percent of allowable limits.

The city also is selling $7.1 million in revenue bonds for sewer projects and $10.26 million in revenue bonds for water projects. Revenue bonds, which are supported by fees and not property taxes, generally bring lower bond ratings. Moody's has rated the city's revenue bonds at Aa2, the third highest rating and the rating the city has maintained for revenue bonds.

After the sale, the city will have $40.4 million in outstanding revenue bond debt for sewer projects and $45.6 million in similar debt for water projects, Drew said.

In addition, the city has used funding from a state revolving fund to which it owes $29.9 million for water projects and $15.3 million for work at the Water Pollution Control facility.

Revenue bonds and the use of the state revolving fund don't count against the state-set limit on city debt.