The future of borrowing became a little brighter for Covington thanks to some positive news from Moody Investor Services.
On Feb. 27, Covington became the only city in the state to have a bond rating upgrade from Moody’s, moving the city’s issuer rating to Aa2 from Aa3. Moody’s also changed Covington’s Limited Tax General Obligation bonds to A1 from Aa3, which is outstanding in the amount of approximately $14.1 million. The upgrade means multiple potential benefits: better interest rates for projects that require construction bonds, help for investors in the secondary market and higher credibility for the city.
“It’s not anything we can take to the bank at this point, its just a feather in our cap,” said Rob Hendrickson, Covington’s Finance Director.
Moody’s initiated a review of Covington for a possible upgrade in January. In its report, the well-respected credit rating business wrote that the upgrades primarily reflect the city’s significantly improved financial profile and positive multi-year financial trends.
Besides “prudent financial policies and conservative budgeting,” Moody’s lauded the city’s proactive management during the beginning of the downturn in the economy that ensured “structural balance in each year.” For example, city officials implemented a utility tax in 2007 that provided a revenue source that offset declining sales tax revenues. Then, following layoffs of 20 percent of the workforce in 2009 and 2010, “management established a Cumulative Reserve Fund equal to one year of debt service, and set an informal 30 percent fund balance target, which has been exceeded in each of the last three years.”
Other key considerations in the rating included the city’s history of solid reserve levels and modest debt burden, including the lack of any pension liability.
“Moody’s expects financial operations to remain strong given prudent fiscal management and ample reserve levels,” the report stated. “Sales tax receipts, the city’s largest source of revenue have rebounded following the recession. Despite this reliance on economically sensitive revenues, the city has maintained healthy General Fund reserves, averaging 47.4 percent of revenues of the last three years.”
Karla Slate, Covington’s Communications and Marketing Manager, said the rating boost should show the public that the city is being fiscally responsible.
“We are not taking steps backward, we are taking steps forward,” she said.
Hendrickson said the sometimes “bold” moves during the recession apparently paid off. He credits the city council leadership and city manager for conservative spending and tax increases.
“We had to lay off employees,” Hendrickson said. “It was a bold decision at the time and it helped keep the city on a good financial track.”
Hendrickson said this is the first upgrade from Moody’s he’s ever been apart of.
“I’m not taking any credit for this at all,” he said. “It’s a team effort and leadership started at the top.”
