City of Columbia, Richland County post strong credit ratings
Standard & Poor’s, a leading financial services company in the U.S., announced it had upgraded the City of Columbia’s long-term rating on general obligation bonds from AA to AA+. It also gave an AA+ rating to the city’s long-term rating on its series 2013 GO bonds.
The new rating indicates the city has a very strong capacity to meet its financial commitments. The highest rating is AAA, which means an entity has an extremely strong capacity to meet financial commitments.
“The city’s full faith, credit, and taxing power secures the bonds,” states a report released by S&P.
A GO bond is a type of municipal bond or loan that a local government entity — in this case, the City of Columbia — guarantees to pay back to bond investors using various resources, primarily by levying property taxes.
GO bonds are not project specific and tend to have high credit value as property owners risk penalties for unpaid property tax bills and the government can raise property taxes to meet obligations. The series 2013 bond is valued at $7.4 million and incurs a repayment deadline of June 1, 2022.
The S&P report noted that according to South Carolina state law, GO bonds are exempt from property tax levy limitations, and the city intends to use a small percentage of the bond proceeds to finance vehicle and equipment purchases and installation.
“We are very proud of the increased general obligation rating from Standard & Poor’s and we will remain diligent in our work to continue to build on the strong financial foundation that we have established for the City of Columbia,” City Manager Teresa Wilson said.
“This rating will yield a solid fiscal position for Columbia as we navigate our future opportunities within the financial industry,” she said.
S&P credit evaluators based the rating on new local GO criteria that assigns a weighted average for several factors. Economy receives the highest weight at 30 percent. The economic structure is based on several factors including population demographics, workforce skills and competitiveness and wealth and income levels.
Management receives 20 percent.
Budgetary performance, budgetary flexibility and liquidity — the ability of an asset to sell on the market without affecting its price — are each scored at 10 percent.
Lastly, institutional framework, debt and contingent liabilities — based on the outcome of a future event — each receive a 10 percent weighted score.
The S&P report mentions several components that contribute to the health of the city’s finances:
- Strong local economy as the state capital and center of the broad and diverse Columbia metropolitan statistical area and further supported by several stabilizing institutions
- Very strong budgetary flexibility based on unaudited general fund results for fiscal 2013, coupled with accessible reserves outside of the general fund
- Strong budgetary performance in fiscal 2012
- Very strong liquidity with exceptional access to external liquidity
- Adequate debt and contingent liability position
Wilson credited the hiring of Chief Financial Officer Jeff Palen with playing an integral role in the credit rating process, which, she said, “establishes a cohesion that brings efficiencies to the overall operation of the entire organization.”
“The stable outlook reflects our view of the city’s strong and stable economy and very strong financial position built up over the past four years. We believe that Columbia is well positioned to maintain its strong finances, based on its good management practices,” credit analysts reported.
This announcement comes after Richland County scored the highest long-term rating possible for its GO debt by moving up a notch from AA+ to AAA in October.
S&P also assigned the county’s $50 million series 2013 GO bond anticipation notes a short-term rating of SP-1, the highest on the rating scale.
Bond anticipation notes are short-term interest-bearing loans to generate funds for future projects. In this case, funds were created for the county’s transportation initiative.
“We believe Richland County will maintain its strong finances due to its long-term planning and conservative budgeting strategies. We also expect debt to remain within the county’s debt policies since management continues to fund its capital plan,” said S&P credit analyst Timothy Barrett.
The county has a much stronger financial standing than the city, and the short-term rating reflects what credit analysts think is the county’s greater ability to pay principal and interest when the notes are due. The notes are scheduled to be paid back on Nov. 1, 2014.
Credit analysts attribute Richland County’s strong legal authority to issue long-term debt to take out BANs and its frequent disclosure of the county’s financial outlook as examples of its low market risk profile.
S&P revealed that Richland County’s bonds and notes are secured by available revenue from the transportation sales-and-use tax that was passed in 2012. The $50 million BANs will be used to fund the transportation improvement plan, according to the report.