City's Credit Rating And Level Of Debt

11 months ago

At the August 20 City Council Work Session, City staff presented their proposed budget for the 2020-2021 biennium. Part of their presentation was a discussion of the City’s credit rating and level of debt.

This important discussion about the City’s fiscal policy choices has been mischaracterized on social media where it has been asserted the City is in poor financial condition. Nothing could be further from the truth. The City of Edina is fiscally strong and financially prudent. The City has earned the top credit rating designation (AAA) available from both Standard & Poor’s and Moody’s Investor Services for many years and is probably one of only 3 dozen cities in the U.S. with such a double AAA bond rating. In addition:

- It is being asserted in social media that City debt exceeds $200 million. This is a grossly inaccurate statement. The City’s debt totals about $112 million, and 80% of it is scheduled to be paid off in 10 years. Annual payments for all current debt are planned 3 to 5 years in advance, and paid for by property taxes or user fees, depending on the type of debt. The debt breakdown is as follows:

  • $60.4 million is for infrastructure improvements (streets and utilities) which are funded through utility fees and special assessments to individual property owners.
  • $37.6 million is for public buildings (e.g., City Hall, Fire Station 1, and Public Works) which is funded by the annual property tax levy.
  • $14 million is for various recreation facilities improvements including Braemar Arena and Braemar Golf Course, which debt is funded through user fees from those using the facilities.

- The City is not low on funds as is asserted on social media. Financing for debt is evaluated and the amount issued is determined based on available cash balances and the impact on either user rates or property taxes. Staff is not recommending paying off debt sooner than called for based on current market conditions.

- The level of debt is only one factor used by credit rating agencies to assess a city’s fiscal strength. Other factors include tax base, budgetary performance, liquidity and financial management. For both rating agencies, the level of debt is only 10 percent of the overall score.

Part of the purpose of the August 20 work session discussion was for the City Council and staff to reaffirm the City’s commitment to a long-term strategy to increase its annual revenue for capital improvement spending for such things as future park and recreation facility projects. That strategy, if employed, is potentially accomplished by leveraging current property tax levies dedicated to debt payments into new property tax levies for annual capital improvement spending. If we determine to use this strategy, the City will reduce its reliance on long-term debt, stabilize its total property tax levy into the future and increase funding for needed improvements in our parks and recreation facilities. Accomplishing this strategy won’t be easy. It will require discipline and patience. But it will allow the City to continue improving the parks, trails, recreation facilities and other City amenities, while also being good stewards of the public purse.

Read City staff's fact check post on this topic.

- Mayor Jim Hovland
Categories: Mayor Hovland