Posted on: December 8, 2017
S&P Global Ratings has raised the City of Richmond’s issuer credit rating (ICR) to “A-“ from “BBB+”
While the City is not accessing the credit markets at the current time, the upgraded credit rating would lower the cost of future borrowing. Perhaps more importantly, it serves as an important indicator regarding the overall financial health of the City.
Richmond S&P Rating Report 12-04...
- S&P comments specifically on the City’s recent history of balancing its budget, and indicates that they “no longer consider the city to be structurally imbalanced…” This structural balance has been a focus of the City Council for the past several years, and it clearly needs to continue if the City is to maintain its financial health and achieve the further rating upgrade that is possible, as described in the report.
- The S&P Report describes budgetary flexibility as “strong,” which reflects the improved liquidity (cash balances) that has been increased over the past several years.
- In sum, the two factors specifically cited by S&P in upgrading the City of Richmond’s issuer credit rating are (1) a structurally balanced budget, and (2) cash in the bank. These factors will continue to be emphasized by staff as we discuss the budget at mid-year and as we move in to the FY 2018-19 budget year: balance the budget and maintain healthy cash reserves.
- S&P has assigned a “positive outlook” which is an improvement from the most recently evaluated “stable outlook.” In short, S&P notes that a future ratings upgrade is possible if the City achieves the financial objectives (balanced budget and healthy liquidity) discussed above.
- Finally, and certainly not to be overlooked, is the notation to S&P’s report regarding “the city's large pension and other postemployment benefit liability.” There are clearly challenges ahead for the City as it works to balance the budget and increase cash reserves, in the form of increased annual pension costs from CalPERS and other post-employment benefits (OPEB). These issues will need to be at the forefront of the City Council’s short- and long-term budget discussions during the months ahead.