Local governments utilize bonds to pay for large capital projects like streets, police and fire stations, parks, and libraries as a long-term financing mechanism that promotes inter-generational equity. The City of Austin's "AAA" bond rating is the highest credit rating available resulting in savings to taxpayers.
City of Austin's Bond Ratings
A bond rating is a measure of an entity’s perceived ability to repay its debt. In assigning a rating to the City of Austin’s debt issues, ratings agencies consider the performance of the local economy, the strength of the City’s financial and administrative management, and various debt‐ratio measurements such as General Obligation (GO) net debt per capita and GO net debt as a percent of total assessed valuation. The rating indicating the highest credit-quality investment grade bonds is “AAA,” and the lowest grade is “C,” also known as “junk.” Investors utilize these ratings when deciding whether to purchase bonds issued by the City of Austin. The higher the rating, the lower the risk to the investor, which results in a lower return to the investor and a lower cost of borrowing for the City of Austin.
The City sells bonds to finance a major portion of its Capital Improvements Program (CIP). GO bonds fund improvements such as streets, police and fire stations, parks, and libraries. They are secured by the full faith and credit of the City and by its ad valorem taxing power. The majority of GO bonds are repaid from property taxes, but some are repaid from other funding sources. Revenue bonds fund improvements for the City’s enterprise activities such as capital projects for the utilities, Austin Water and Austin Energy, and have also been used to build the Convention Center and fund construction of the Austin-Bergstrom International Airport. Revenue bonds are repaid from revenue of the corresponding enterprise and not property taxes.
Combined Utility Revenue Bonds
The bond ratings are assigned directly by the ratings agencies Moody’s, Standard & Poor’s, and Fitch Investors.
FY 2015-16 Results
In FY 2015-16, the goal to maintain current GO and revenue bond ratings from all of the bond rating measures were met.
Assessment of Results
In April 2010, Fitch Investors and Moody’s Investors Service recalibrated the GO bonds rating from AA+ to AAA, and Aa1 to Aaa, respectively. All three rating agencies continue to rate the City of Austin’s GO debt the highest possible rating. In July 2012, Moody's Investors Service increased the Combined Utility System Prior Lien Revenue Bonds rating from A1 to Aa1, and in July 2013, Fitch Investors upgraded them from AA- to AA. The City of Austin’s Combined Utility System Prior Lien Revenue Bonds exceed the A rating, which is considered a good credit risk for investors.
City management is committed to the continuation of the City’s strong financial health, including the maintenance of designated reserve funds and policies limiting their use, which will result in long-term budgetary stability and corresponding quality debt ratings. The current quality ratings help ensure that the City of Austin will achieve favorable financing rates when issuing debt.
For more information contact Art Alfaro, Treasury Office, at (512) 974-7882.