Written by The Business Journal Staff
Fresno’s finances were in such bad shape that a 2013 Time Magazine article lumped it with cities on the verge of declaring bankruptcy, like Detroit had. That same year, a USA Today article listed Fresno as a city on the verge of bankruptcy.
So it was with abundant pride that mayor Lee Brand called reporters Monday morning to City Hall to announce that the latest Standard & Poor’s bond rating for Fresno had been upgraded substantially from last year’s BBB- to five levels higher—A+.
That doesn’t put the city’s bonds rating in the four highest grades of S&P’s rankings—AA to AAA—but it does put the city in the “upper middle grade ranking” and takes it out of the “junk bonds” grade, city officials said.
Moody’s Investors Service also announced on Friday its latest bond investment ranking for Fresno—A3. That ranking, which is the same the city received last year, is also in the upper medium grade.
“You can imagine how thrilled I am to announce that both Standard and Poor’s and Moody’s have significantly upgraded the City of Fresno’s investment ratings,” said Brand, who credited the change to city leaders, including himself and his predecessor Ashley Swearengin, who collectively took strong action over the past eight years to get Fresno’s financing in better order. This included turning the $1 million reserve fund the city had three years ago into the nearly $20 million reserve fund it has today.
This rating news will have some positive effects on Fresno’s finances, as the officials already were planning to refinance about $120 million of its current $800 million in bond obligations.
The significantly higher A+ rating from S&P will allow the city to negotiate a much lower interest rate that could result in the city having to pay about $35 million less to the investors who bought those bonds over the next 22 years.
An estimated $26.4 million of those payment’s would have come out of Fresno’s general fund over the next 15 years, which means that after the refinancing, the city likely will have to pay out about $1.8 million less to the investors who bought the affected bonds, and that money could go to help pay for public safety personnel, infrastructure improvements, filling pot holes, setting aside cash in reserve or whatever else the current and future city councils choose to do with it, Brand said.
“It’s a little like improving our credit score” and negotiating a home loan with more favorable interest rates, though in this case the length of the city’s payout on the bonds—portions of which were used to fund improvements to City Hall and the Fresno Convention Center and to pay to build Chukchansi Park downtown, which opened in May 2002—wouldn’t be extended, as it would with a new mortgage, said Fresno City Manager Bruce Rudd.
As such, the affected bonds still would be paid off over the next 15 years after the refinancing.
“It’s amazing to think that 4 years ago, the nation was writing Fresno off and predicting bankruptcy for us. As you can see by the display, we were featured in Time Magazine in August 2013 as one of five cities on the verge of becoming the next Detroit,” the mayor said, adding that “through hard work and some hard decisions, we fought off economic collapse.”
“The decisions by Standard & Poor’s and Moody’s are based on strong leadership combined with strong fiscal policies adopted by the council over the past eight years and budgetary performance over the past few years,” Brand said, noting that he drafted some of those policies when he was a councilman.
The S&P states that Fresno’s new bond rating “reflects our view of the city’s substantial improvements in its financial management practices and policies, elimination of its structural operating deficits in the general fund, restoration of its available general fund to strong levels, and maintenance of a clean auditor opinion without any going concern in the city’s comprehensive annual financial reports in each of the past three fiscal years.
“The city’s local economy has demonstrated a recovery overall in recent years after experiencing years of declines in assessed value levels in the beginning years after the Great Recession. Both property tax and sales tax revenues have demonstrated growth in recent years, reflecting the overall recovery of the city’s local economy.”
Along with city leaders following strong financial policies—a change from “very weak” policies a few years ago—that seem well embedded and likely sustainable, the report continues.
The S&P analysts also cited city officials using historical trends and third-party resources to project future revenues and expenditures, quarterly presentations of the city’s budget to the City Council, maintaining a five-year financial forecast that’s updated annually and a five-year capital improvement plan with all funding sources identified.
“The city also maintains a formal comprehensive debt-management policy that provides guidelines on the types of debt the city can issue and for what purpose,” the report reads.
Finally, the analysts state, “Fresno’s budgetary performance is strong, in our opinion.
“In fact, in 2014 the State of California recognized the debt management policies I wrote that were adopted by the city in 2010 as one of the best debt-management policies in the state. In a matter of 10 years we went from having unsound fiscal practices to having one of the best in the state.”
In addition Fresno also has the distinction of being one of only seven cities in the U.S.—and the only one in California—with a fully-funded pension plan for its employees, said Rudd, who noted on his own biography posted on the city website that he was appointed to his current job by Swearengin in 2013 when “the City of Fresno was teetering on the verge of bankruptcy.”
He also noted that about three months ago, the last of the big-three U.S. bond and credit rating agencies, Fitch Ratings, gave Fresno an A rating, also in the upper medium range.
As for the future, both Brand and Rudd told reporters that despite the good news about the city’s finances, if officials stray from the current fiscal course future bond ratings could decline.
For his part, Rudd noted that there are some who have told him the city doesn’t need the full $20 million reserve let alone trying to reach the council’s current goal of a reserve equal to about 10 percent of the total general fund, which would amount to $26 to $27 million.
Brand conceded that Fresno has a lot of issues to fix from shortages in civilian personnel to needed infrastructure work, but rather than straying from the fiscal strategy that is working, the city needs more jobs and development that will grow its financial base.
“In the coming months, I will announce a major economic expansion plan” intended to generate more jobs in the city and more tax revenues, said the mayor, who didn’t elaborate on those plans.