Ratings agency downgrades Coralville bond ratings again

CORALVILLE - Despite recent efforts by Coralville to address its financial situation, the city's bond ratings have taken yet another hit.

Moody's Investors Service last week announced downgrades to Coralville's general obligation bond and water enterprise revenue debt ratings - from Baa2 to Baa3. The city's annual appropriation debt also dropped from Ba1 to Ba2.

Coralville City Administrator Kelly Hayworth said the latest downgrade was upsetting, especially considering the city's hiring of financial consultant Springsted Inc. about two years ago. The St. Paul, Minn. company was hired to help the city address bond rating downgrades.

'Obviously we are very disappointed in the downgrade, we have had significant changes in the last two years in terms of our finances,” Hayworth said. 'I think we feel very good about what we've been able to accomplish in the last two years.”

Barry Fink, senior vice president with Springsted Inc. said the downgrade isn't what he wanted to see, but added changing a city's ratings can take several years.

'(Coralville is) making progress, it's probably a progress that's slower than people thought it'd be, but it's largely a function of the system,” Fick said. 'You can't just turn those around all of a sudden.”

Fick and Hayworth said the city's next step is to create a more structured policy to handle financial assistance requests, to create more consistency. Those policies should be adopted by February.

For a city, Moody's ratings are similar to a person's credit score and often are viewed as indicative of financial health. A lower rating means higher borrowing costs for a city.

The latest drop adds to a trend in Moody downgrades for the city in recent years.

Coralville's main rating with Moody's dropped six notches from April 2012 to May 2013 and was given a 'negative outlook.”

Last year, after the city hired Springsted Inc. to address repeated rating downgrades, Moody's left Coralville's bond ratings unchanged. But the outlook remained negative.

According to Moody's, Coralville's debt is more than $240 million.

The most recent Moody's report also notes the outlook on Coralville's finances remains negative, largely because of to the city's debt and highly leveraged Tax Increment Finance districts.

'The negative outlook reflects our expectation that Coralville's debt and other contingent liabilities will continue to pressure the city's cash position and overall operating flexibility,” according to the report.

The report wasn't entirely negative, however. Moody's noted Coralville's sound regional economy and manageable, unfunded pension liabilities.

The city's bond ratings could continue to drop if the city's liquidity position narrows, if the debt grows or if the city continues to invest in 'enterprises that are non-essential to municipal operations,” according to the report.

Such enterprises have been mentioned in previous Moody's reports and include a hotel, golf club, performing arts center and brewery.

To bring ratings back up, Moody's suggests the city reduce its debt, reduce enterprise risk and create a larger financial cushion relative to the city's debt.

By comparison, nearby Iowa City was awarded a Aaa bond rating - the highest credit rating possible - from Moody's for the 39th consecutive year.

To the north, Cedar Rapids last year lost its long-held Aaa bond rating, dropping to Aa1 after more than 40 years of the top rating.

Moody's reaffirmed that Aa1 rating earlier this year, citing the city's 'elevated” if 'manageable” existing debt, 'moderate” exposure from unfunded pension liabilities and a 'risk” associated with the ownership of a hotel and convention center as negatives.

As positives, the report noted the city's large and growing tax base, status as a regional economic center and healthy financial reserves.