City Bond Rating Reaffirmed for Third Consecutive Year

Aug 4th, 2011

For the third consecutive year, the nation’s largest bond-rating agency has reaffirmed the City of Mobile “AA-” general obligation bond rating, Mobile Mayor Sam Jones said Wednesday.

“We're managing our finances well,” Jones said, citing sound fiscal management, the city's increased reserves and a moderate debt burden as reasons why the rating was affirmed by Standard & Poor’s Rating Services.

The rating reflects Standard & Poor’s view of the city’s role as a regional service with an expanding local economy; good financial performance, with good general fund reserves and a moderate debt burden.

A bond rating reflects the quality and safety of a bond - based on the issuer's financial condition. Bonds rated AA are judged to be of high quality and are subject to very low credit risk.

“We are thrilled with this rating,” Mobile Finance Director Barbara Malkove said. “The rating is based on the temporary one-cent sales tax increase, prudent financial planning and the city’s budget for the past three years,” she said. “The mayor had city departments tighten their belts, and it has paid off – for now.”

Malkove cautioned that though the current rating is good, Mobile may dip to a negative bond rating when the temporary sales tax expires in September.

“They have us on a negative watch for the future because it is quite possible that we won’t be able to balance the city’s budget in 2013 when the penny goes away,” she said. “We can balance it next year (2012) because we’ll use $17.3 million from the reserve fund. However, the reserve fund goes away when the penny expires.”

The city anticipates at the end of 2011 fiscal year a fund balance of $26.4 million due to the excess revenue generated from the temporary penny sales tax and various cost cutting measures in city government.

Since the adoption of the additional penny sales tax last year, Jones instituted various cost cutting measures in city departments:

• A hiring freeze on new positions;
• Expenditure reduction;
• Essential travel only;
• A reduction in city departments operating budgets.

Standard and Poor’s cited the city’s financial management practices as good. The city’s tax base has been growing at a 6% annual average rate during the past four years…”we believe that Mobile’s financial position remains good despite the national recession.”