The City of Evanston this week took advantage of unusually low interest rates to refunded general obligation bonds for a savings of nearly $862,000.
But in rating the new bonds Moody’s Investors Service repeated its concerns that the city’s growing unfunded pension liability threatens its top-level “Aaa” credit rating.
The City of Evanston this week took advantage of unusually low interest rates to refunded general obligation bonds for a savings of nearly $862,000.
But in rating the new bonds Moody’s Investors Service repeated its concerns that the city’s growing unfunded pension liability threatens its top-level “Aaa” credit rating.
A previous refunding last December saved an additional $666,000 in total present value debt service reductions.
City Manager Julia Carroll announced the savings at the conclusion of a $30.4 million tax exempt offering by JPMorgan, senior underwriter, and Alta Capital Group, LLC (MBE) co-managing underwriter of the financing. Scott Balice Strategies, LLC (WBE) served as the City’s financial advisor for this transaction.
The refunding savings will reduce debt service payments through 2019. The bonds refund portions of general obligation debt issued by the City in 1997 and 1999.
City Finance Director Matthew Grady said he began a review of outstanding bonded indebtedness that led to the refunding efforts just after his appointment last September .
Tuesday’s offering was issued at an all-in interest rate of 4.22 percent in a market environment where rates are now near a 35 year low.
The city once again received the highest ratings possible, an “AAA” from Fitch Ratings and an “Aaa” from Moody’s. Fitch assigned the “AAA” saying it was “based on high residential wealth and income levels, a record of strong financial management, which limits financial exposures and a manageable debt burden.”
Fitch said, “Using a diverse revenue stream, Evanston produces steady operating surpluses. Expenditures demonstrate high service standards that the electorate is willing to support through a higher tax burden. Still, city management has responded to recent economic pressures with careful and timely budgetary adjustments.”
Moody’s cited the city’s sizable and diverse economic base anchored by Northwestern University and the City’s sound financial reserves, and noted the strength of downtown development, new residential construction and the appreciation of the highly valued housing stock, which has contributed to an 11.8 percent average annual increase in the city’s full valuation since 2000.
Moody’s, which placed the city on “negative outlook” last December, commented that its expectation is that the city’s growing unfunded pension liability will result in a deterioration of credit quality inconsistent with the “Aaa” rating in the future.
In a news release, City Manager Julia Carroll said, “We are particularly pleased that the rating agencies have recognized the depth and magnitude of the City’s successful economic development programs.”
Carroll and Grady are studying strategies for reducing the unfunded police and fire pension liabilities and have reported to City Council on the nature of the liability and options available to the dity for managing the funding levels.
Grady said, “We are please to have the ratings confirmed and to be able to offer this issue approximately two weeks after the City Council’s authorization. This was an opportunistic refunding that we wanted to lock in at the market’s current low rates.”
He added, “We will continue to aggressively monitor the city’s debt portfolio for savings as opportunities arise. Over the course of the summer I will work with the city manager to analyze the options available to the city for dealing with its pension obligations. We have a lot of work to do.”