Two top bond credit rating agencies, Moody’s Investor Services and S&P Global Ratings, are giving the city of Brownsville high marks for financial management and credit worthiness during fiscal year 2021, despite challenges posed by the pandemic.
Moody’s last week assigned a rating of “Aa3,” which is the fourth highest rating in the agency’s long-term corporation obligation rating system and indicates very low credit risk. Specifically, the rating targets $18.6 million in Certificates of Obligation the city issued and is paying off through an annual ad valorem property tax, or surplus revenue from the municipal landfill if necessary.
Certificates of Obligation are a way for cities and other governmental entities to issue debt to pay for public projects without having to seek voter approval. The city is using them to finance various capital infrastructure projects.
Moody’s also maintained an “Aa3” rating for on the city’s General Obligation Limited Tax (GOLT) debt, which will equal $175.4 million when the bonds are issued, according to the agency. GOLT bonds are those for which the governmental entity must raise property taxes by a certain percentage to cover the debt in the event of excessive delinquency in property tax payments.
Moody’s said its ratings reflect “the city’s trend of positive financial operations supported by (an) expanding economy driven by cross-border trade with Mexico” and the Port of Brownsville, which the agency described as a “major active port.” Moody’s noted that despite the city’s economic growth, resident income and total value of taxable property are “very weak” compared to other entities in the same rating category.
On the plus side, the city’s debt and pension obligations are “manageable despite an elevated fixed-cost profile,” according to the agency.
One factor that could result in a ratings upgrade would be “significant improvement in resident incomes and wealth indices,” while a weakening of the same could lead to a downgrade, Moody’s said.
S&P delivered an “AA” rating, the agency’s second highest rating, indicating a “very strong capacity to meet financial commitments.” S&P said its rating reflects the city’s importance as a port-of-entry for international trade and commerce, with the University of Texas Rio Grande Valley exerting a “stabilizing effect on the local economy.”
The agency also cited growing property and sales tax bases and strong financial management. The city ended up with a sizable fiscal year surplus, while federal pandemic aid to allowed for one-time capital investments while making possible a “very strong fund balance above the city’s 90-day fund balance target.”
City Manager Noel Bernal said recognition of the city’s financial management practices by two leading rating agencies is something to be proud of.
“These excellent and stable ratings allow for the city of Brownsville to continue making progress on critical infrastructure investments that benefit our overall community as prioritized by our mayor and city commission,” he said.
