SOMERSET, Ky. (WTVQ) — Moody’s Investors Service has upgraded the City of Somerset’s bond credit rating by two levels, from Baa1 to A2, deeming the city a low credit risk to investors.
The rating for the city of 11,500 people reflects “the continued stability of the city’s healthy fund balance and liquidity position supported by local tax revenue growth, annual transfers from the city’s gas and water utility funds, and conservative budgeting practices,” according to a release from the nationally recognized rating firm.
An A2 rating is considered upper-medium grade with low credit risk; the city’s former Baa1 rating indicated a medium grade with moderate credit risk.
Moody’s reviewed the city’s outstanding rated general obligation bonds, affecting $7.6 million in debt, as well as $9 million in general obligation refunding bonds. Both were rated at the A2 level.
Moody’s rating scale, running from a high of Aaa to a low of C, ranks government, municipal and corporate bonds by their general creditworthiness. The higher the rating, the lower the interest rate governments usually receive on bond issues.
The higher rating comes at a good time because interest rates are at or near all-time lows, meaning local governments can technically get more money on bond issues because of lower payments and lower long-term interest costs for taxpayers.
The rating also reflects the strong financial position of the city’s governmental and utility funds, a moderately sized and growing tax base, a manageable debt burden, and above-average pension liability.
“We have put ourselves in a much better position for the future,” said Mayor Alan Keck, who has been in office 18 months. “We’ve maintained a healthy rainy-day fund while saving close to $1 million in salaries and benefits and continuing to invest in our city workforce.
“Shortening the length of our debt commitment for the Somerset Energy Center from 40 years to 25 saved taxpayers an incredible $2.4 million. We will continue to improve our financial viability while also investing in our people and in much-needed water, wastewater and facilities upgrades that have been ignored for far too long,” Keck added.
According to city communications director Julie Harris, the city is looking to refinance 40-year USDA bonds to 25 years for the innovative 36,000-square-foot Somerset Energy Center which opened in the spring of 2016,
Combining the shorter amortization term with the likely lower interest rate, the city hopes to save taxpayers somewhere between $2 to $2.5 million depending on the rates at the time of the bond sale.
As of the last audit report, the city had $15.1 million of general obligation long-term debt and $27.55 million in business-type activities long-term debt, Harris said.
Though the coronavirus pandemic is viewed as a social risk, Moody’s did not use this as a key driver for Somerset’s rating and advisors do not see any immediate credit risks for the city, according to the report.
Keck said though nothing in 2020 has been conventional, he has full confidence this financial outlook shows the city will continue to thrive despite the challenges the economy faces.
“The work we’ve done in this short amount of time, and are dedicated to continuing, is unprecedented,” he said. “I will continue to charge forward with a vision that will reignite our city’s economy, and this credit rating is a huge step in that effort.”