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By Brian Hews
April 26, 2022~An S&P Global issue credit rating (S&P) is a forward-looking opinion about a city’s creditworthiness related to a specific financial obligation.
The opinion reflects S&P’s analysis and considers the city’s capacity to meet its financial commitments as they come due.
In 2021, the Pico Rivera City Council authorized the City Manager to issue pension obligation bonds (POBs) to refund a portion of the city’s currently unamortized, unfunded accrued liability to the California Public Employees’ Retirement System (CalPERS), saving the city millions.
And the City’s overall financial position for issuing POBs was well received by financial rating companies.
Yesterday, S&P assigned its ‘AA’ long-term rating to Pico Rivera’s $19.325 million POBs.
An obligation rated ‘AAA’ has the highest rating assigned by S&P; the city’s capacity to meet its financial commitment on the debt is extremely strong.
An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The city’s capacity to meet its financial commitment to the debt is very strong.
The high ratings did not stop there. At the same time, S&P affirmed its ‘AA-‘ long-term rating and underlying rating called SPUR on the city’s existing lease revenue bonds, writing, “the outlook is stable.”
A SPUR rating is an opinion about the capacity of a city to pay debt service on a credit-enhanced debt issue, in this case, the city’s existing lease revenue bonds. The ratings are published at the request of the city with the designation SPUR to distinguish them from the credit-enhanced rating that applies to the debt issue.
The POBs of the city can be paid from any available funds. Citing Pico Rivera’s “strong management team,” S&P rated the city’s POBs “on par with its general creditworthiness due to our view that the city’s ability to pay the obligation is closely tied to its operations.”
The recent AA rating presents an opportunity for the City Council to consider a resolution approving final steps and documents needed to refinance a new round of POBs.
If approved, the city will refinance approximately 62% of the city’s unfunded actuarial liability (UAL), reduce the current UAL payments by roughly $7.5 million, and achieve a 90% funded ratio after the POBs are issued.
S&P wrote, “The city continued to produce operating surpluses during the pandemic through conservative revenue forecasting and expenditure restraint.
“Following a reexamination of the reserve policy, the city strengthened its reserve policy target in 2020 to 50% of revenues to adjust for the risk characteristics of the general fund revenues, and this provides an additional cushion against downside risk.
“The stable outlook reflects our view of the city’s very strong budgetary flexibility and its positive trend in sales tax and property tax revenues, which have strengthened the city’s financial position. We do not expect to change the ratings during the next two years.”
Pico Rivera City Manager Steve Carmona told HMG-CN, “I am very proud of the fine work staff did to maintain our good standing with the investment community. Together we worked to strengthen our General Fund Reserves to adjust for the risk characteristics of general fund revenues, maintained a very strong budgetary flexibility and oversaw a positive trend in sales tax and property tax revenues, which contributed to strengthening our overall financial position now and into the future.”
Pico Rivera Mayor Dr. Monica Sanchez commented, “I’d like to commend city staff for doing a stellar job leading to the excellent rating with Standard and Poor’s. Their focus on continuing to produce operating surpluses during the recent pandemic through conservative revenue forecasting combined with an emphasis on expenditure restraint contributed greatly to maintaining our good standing in the financial community.”
