News Column

Burlington sheds negative bond rating

June 17, 2014

By Kathleen Sloan, The Hawk Eye, Burlington, Iowa

June 17--Moody's likes what it sees at Burlington City Hall.

While the city's sewer bond rating remains steady, it has been removed from the bond rating service's negative watch.

Moody's Investor Service downgraded the city's sewer bond rating three years ago, City Manager Jim Ferneau reminded the Burlington City Council at its meeting Monday.

The sewer bond had been A-3 and was upgraded to A-2. But it continued on negative watch because the city was still transferring money from department funds. Ferneau said the practice discontinued last year.

"They liked the city's improved cash position, the elimination of transfers and have confidence in the city's plan to build cash balances," he said. "They affirmed the A-2 rating and took the sewer bond off negative watch," he said.

Bonds rated at A1, A2 or A3 are considered upper-medium grade and carry a low credit risk. But if the city can improve its bottom line, ratings of Aaa, Aa1, Aa2 or Aa3 carry lower interest costs.

When bonds drop into B category, they're considered speculative, from Bb1, a significant risk, to the high-risk B3.

Moody's remains concerned about the expensive sewer upgrades the EPA and the Iowa Department of Natural Resources are requiring the city to install during the next decade, Ferneau said. But he noted the city's recent 5 percent increase in fees helped ease that concern.

"We are hoping to get to just CPI (consumer price index) increases over time," he said.

The city has slashed the number of capital projects it undertakes, keeping them to about $2 million a year over the next five years.

Ferneau said Moody's conducted a nationwide evaluation of cities and schools in 2014. It recognized services had to be cut to pre-2008 levels, he said.

"Moody's said they've done a good job of stabilizing services at a lower level," Ferneau said. "It's the new normal."


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Source: Hawk Eye, The (Burlington, IA)

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