SALISBURY — Standard and Poor’s on Wednesday upgraded the city of Salisbury’s bond rating for the second time this year.
A bond rating helps to measure a city’s financial health and influences the city’s cost to borrow money. Standard & Poor’s Ratings Services raised its rating on Salisbury’s general obligation bonds one notch to AA from AA- based on the agency’s recently released general obligation criteria, published in September.
Standard & Poor’s also raised the city’s certificates of participation rating one notch to AA- from A+. Both outlooks are stable.
In the rating opinion, S&P said the city’s overall budgetary performance has been strong.
Two years ago, the city was spending more than it was taking in. Standard & Poor’s said in August, when analysts upgraded the bond rating one notch from A+ to AA-, that the city had reversed the trend and strengthened its financial foundation.
The agency attributed the improvement to management’s actions, including raising revenue and budgeting expenditures more conservatively.
“This is a testament to the continued hard work of our city team over the last two years,” City Manager Doug Paris said in a press release. “They have done a great job.”
Standard & Poor’s commented in August and on Wednesday about the city’s low level of outstanding debt, which is 1 percent of market value.
In Wednesday’s opinion, the agency mentioned the city’s plans to take on significant debt.
“In our opinion, despite Salisbury’s significant debt plans within the next two years, its debt and contingent liabilities profile is very strong,” an S&P analyst said in the report.
John Sofley, assistant city manager for finance, said the analyst was referring to the city’s plan to build the proposed $7.3 million school central office in downtown Salisbury. Sofley said the city no longer plans to take on the debt or build the central office.
The city recently pulled its application with the state’s Local Government Commission, which must approve before any North Carolina city borrows money. The city had planned to construct the central office building and lease it to the school system.
“As you are aware, Rowan County will be taking on this debt in the amount of $6 million,” Sofley said. “As you also recall, lease revenue was going to cover the debt payments, but all of that is moot now.”
Mayor Paul Woodson has named the downtown school central office as one of his top campaign priorities. An unnamed Salisbury family has offered to construct and finance the $7.3 million building at 329 S. Main St.
The Rowan-Salisbury Board of Education recently named 329 S. Main as one of three sites the board will consider for the central office, despite resistance from a majority of Rowan County commissioners, who must sign off on a long-term lease.
Standard & Poor’s gave Salisbury a stable outlook, based on the opinion that the city “will likely maintain its very strong liquidity and strong budgetary performance. We believe debt will likely remain manageable due to, what we consider, rapid amortization.”
The rating service said it may consider another upgrade for Salisbury soon.
“We could raise the rating over the outlook’s two-year period if the local economy and budgetary flexibility continue to improve,” the report said.
Wednesday’s rating upgrade reflected a variety of S&P opinions, including:
• Salisbury’s overall budgetary performance has been strong with a general fund surplus of 6.4 percent of expenditures in fiscal 2012 and 6.3 percent of expenditures for total governmental funds. Unaudited fiscal 2013 results indicate budgetary performance will remain very strong with surpluses of 8.1 percent and 8 percent for the general fund and total governmental funds, respectively. For fiscal 2014, however, it is still too early for city management to predict where Salisbury will finish. S&P expects strong budgetary performance with balanced general fund and total governmental funds operations.
• Very strong liquidity supports Salisbury’s finances with total government available cash at 49.9 percent of total governmental fund expenditures and well above 150 percent of debt service. The city’s maintenance of exceptional access to external liquidity further bolsters the opinion.
• Salisbury’s budgetary flexibility is adequate with available reserves at 5.6 percent of expenditures and transfers out for fiscal 2012. Officials indicate Salisbury will close fiscal 2013 on June 30 with a surplus that improves budgetary flexibility. S&P expects budgetary flexibility to remain adequate. Officials balanced the fiscal 2014 budget with no fund balance use, maintaining adequate budgetary flexibility.
• S&P views Salisbury’s management conditions as strong with “good” financial management practices under the Financial Management Assessment methodology, indicating financial practices exist in most areas but that governance officials might not formalize or regularly monitor all of them. Management highlights include a five-year financial forecast and a five-year capital improvement plan.
• Total governmental funds debt service is 5.2 percent of total governmental funds expenditures and net direct debt is 15 percent of total governmental funds revenue. Salisbury has low overall net debt of 1 percent of market value and very aggressive debt amortization, with officials planning to retire 67.8 percent of principal over the next 10 fiscal years. S&P expects debt issuance over the next two years to bring net direct debt, including the new issuance, to roughly 50 percent of governmental fund revenue.
• Salisbury’s economy is adequate. The city has projected per capita effective buying income at 78.1 percent of the national level and market value at $95,292 per capita.
Contact reporter Emily Ford at 704-797-4264.