The taxpayers of Maricopa are paying off Copper Sky Regional Park, and City Hall is trying to get a better interest rate.
Monday, the City is taking $10.15 million of its general obligation bond into the market for refinancing. The odds are in its favor, as three bond-rating companies upgraded Maricopa’s bond in late May.
The City had been warned by all three companies – Standard & Poor, Moody’s and Fitch – that the market was tenuous because of COVID-19 and other economic factors. Tuesday, City Manager Rick Horst told the city council he had been told to expect to stay at the same rating or even drop, but the bond rating was in fact upgraded by all three.
“Moody’s took us from AA3 to AA2. There’s only one step higher, which is AA1,” Horst said. “Fitch rated us for the first time ever AAA, the highest rating that they can give. Standard & Poor rated us as AA, with AA+ being the highest standard.”
He said the strong bond ratings give the City a better chance for a lower interest rate on the bond. He said it could save taxpayers as much as $1.5 million.
Fitch, in giving the bond a AAA rating, also gave the City itself an AA issuer default rating, which the company defines as “Very high credit quality.”
“The city’s long-term liability burden, comprised of overall debt and net pension liabilities, is low at 6% of total personal income,” the company reported. “Fitch expects the long-term liability burden to remain low based on a lack of direct debt plans and the city’s ongoing commitment to accelerate pay-off of its unfunded liabilities related to public safety pensions.”
Fitch also pointed out the City’s revenues grew in excess of the U.S. GDP for the 10 years ending in fiscal year 2019.
Moody’s reported its upgrade of Maricopa’s bond was influenced by rapid development and population growth.
“It further reflects long-term strength and stability of the city’s financial position, bolstered by the city’s differences from a typical Arizona city, including a less volatile revenue mix and below-average pension and OPEB liabilities and costs,” Moody’s reported. OPEB stands for other post-employment benefits.
It described Maricopa as “well positioned to weather the impacts of coronavirus and impending recession, having demonstrated its management strength and financial flexibility through the last recession when reserve levels remained above 70%. While like all cities in Arizona, there is some reliance on sales tax, it is less elevated than most and is supported by the application of sales tax to essentials like groceries.”
S&P had previously rated Maricopa’s bond as A- before the May upgrade.
“The raised rating reflects our view of the City’s improved budgetary performance and maintenance of very strong available reserves,” said S&P Global Ratings credit analyst David Mares. “Despite the improvement, however, we believe management will continue to wrestle with challenges to align its revenue and expenditures, particularly given the financial uncertainty in fiscal 2020 posed by the pandemic and looming state reductions to intergovernmental revenue.”
That was a warning all three bond-rating companies attached to their ratings report, each saying COVID-19 could alter the bond ratings if the City’s economy takes a hit in the future.
After the issuance of the bond, Maricopa will have $35.5 million in outstanding general obligation bonds.