The City of Phoenix’s bond rating was reduced last week from AAA to AA+ with a stable outlook.
Standard and Poor’s said the reduced rate “is directly attributable to S&P’s newly released, changed criteria” and if market values were to climb, that would improve Phoenix’s score.
Phoenix’s bond rating remains the highest of the six largest cities in the U.S., according to a statement from the city.
“Clearly it’s disappointing any time a bond rating is adjusted in this way,” said Acting City Manager Ed Zuercher. “S&P’s new criteria places great scoring emphasis on the one aspect of our economy that was hit the hardest during the Great Recession – property values.”
City Councilman Sal DiCiccio said while the new bond rating is not a “sky is falling” situation for the city to be in, it is concerning.
“It is a significant move because it is a move backward for the city of Phoenix,” DiCiccio said. “In terms of costs yes the cost will go up but it’s not a huge move. It is a move the city of Phoenix has not been through before even in the rough times of the recession in 2010. This is a slippery slope.”
DiCiccio believes the real reason the city was downgraded is because there is not a plan to cover long-term debt.
“It’s a kick-the-can-down-the-road policy,” DiCiccio said. “We’ll face a fiscal crisis in five years if something is not done to address it … The fix is this: We need to stop the budget gimmicks because sooner or later they catch up. You have to fix your unfunded pension liability. You’ve got to find a new model. You have to move off the current pension structure because it doesn’t work. It’s a slide we’ve got to move off of.”
S&P said their rating is based off their assessment of several factors including adequate economy and market values, very strong budgetary flexibility, adequate budgetary performance, very strong liquidity, very strong management, and weak debt and contingent liabilities position.
“I’m disappointed the new S&P criteria have affected Phoenix, but we still have the second-highest bond rating in the nation and earned the highest marks for budget flexibility and fiscal management,” said Mayor Greg Stanton in a statement. “Working together, the City Council passed sweeping pension reforms and ended pension spiking, which will save taxpayers $829 million over the next 25 years. And during my time as mayor, the city will continue to retire its debt and maintain sound fiscal policy. We’ll continue to work together to improve our economy, create good jobs and lead Phoenix through the lingering impact of the Great Recession.”
S&P also recently adjusted the ratings of Indianapolis, from AAA to AA; Omaha, from AAA to AA+; St. Louis County, from AAA to AA+; Des Moines, Iowa, from AAA to AA+; Glendale, Calif. from AAA to AA+, and Clark County, Nev. from AA+ to AA.
“The stable outlook reflects our view of Phoenix’s broad and diverse economy, combined with management’s history of proactive budget-cutting efforts in response to budget gaps to maintain what we consider very strong fund balances,” S&P said in their report. “We anticipate that the city will continue to hold at least a strong fund balance position in the future. Market values are projected to climb after multiple years of declines, which could improve the economy score. If the city were to significantly deplete reserves or lapse into significant structural imbalance, we could take a negative rating action. We do not expect to change the ratings within the two-year outlook horizon.”
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