February 3, 2023
Annapolis, US 38 F

Bond Agencies Say Annapolis Is ‘Stable’

Mayor Joshua J. Cohen announced that all three of the major bond ratings agencies have released a stable outlook for $17.7 million of new general obligation bonds while also assigning the same rating and outlook to the City’s refunding authorization. The City is pursuing the authorization to take advantage of lower interest rates.

Currently, the City has $93.8 million in outstanding debt, of which $45.7 million has received refunding authorization.

Fitch Rating assigned the City a AA+ rating, Moody’s a Aa3 rating, and Standard & Poor’s a AA rating, all with a stable outlook.

“All three ratings are consistent in affirming that the City has turned the corner both in terms of our internal controls and our budgeting,” Mayor Cohen said. “Still, we have more work to do.  We need to continue to be frugal in balancing demands for services with our ability to pay for them, and we need to continue addressing our long-term liabilities.”

Fitch Ratings noted the following when giving the City the AA+ rating and stable outlook:

  • Improved results in Fiscal 2011 – Significant expenditure cuts in fiscal 2011 resolved the structural imbalance of the several preceding fiscal periods that had greatly diminished the city’s financial flexibility and liquidity.
  • Commitment to Fiscal Stability – Crucial to the city’s rating stability is its commitment and adherence to newly implemented internal controls and analytics. New financial management has taken positive actions and Fitch’s rating relies on sustained strong financial management.
  • Weakened tax base offset by tax rate increase – Real property values have proven vulnerable to the housing decline, after strong growth over the last decade. The city has shown a recent willingness to offset assessed value (AV) declines with tax rate increases.
  • Strong Economy – City benefits from a wealthy tax base, with per capita and median income levels well above-average. The economy also profits from a stable employment base with a solid government presence enhanced by the military, tourism, and maritime industries.
  • Low Debt Burden – Overall debt levels are low and amortization is slightly below average. Debt service is expected to remain low given the city’s limited capital needs; however, poor pension funding practices are more notable.

Moody’s has removed the negative outlook and assigned a stable outlook to the City’s outstanding general obligation debt and noted the following when giving the City the Aa3 rating and improved outlook:

The stable outlook reflects the city’s proactive measures and expected future commitment to raising revenues and reducing expenditures to improve the city’s reserve and liquidity position going forward.

Strengths include:

  • A large tax base anchored by public sector presence
  • Manageable debt burden
  • Satisfactory reserve levels
  • Improved liquidity position

Standard & Poor’s considers Annapolis’ financial management practices “strong” under its Financial Management Assessment methodology, indicating practices are strong, well embedded, and likely sustainable.

Standard & Poor’s noted the following when giving the City the AA rating and stable outlook:

  • Local economy, anchored by state and federal government and maritime-related tourism with access to, and participation in, the Baltimore and Washington metropolitan areas;
  • Growing and very diverse property tax base with no taxpayer concentration;
  • Finances that remain sound despite some reserve fluctuations recently due to structural budgetary imbalances; and
  • Low-to-moderate debt with manageable additional capital needs.

“To have this positive validation from global third-party organizations is indeed a means to measure our accomplishments,” City Manager Michael Mallinoff said. “Not only am I pleased to see the steps we took to stabilize and improve the City’s budget have been recognized, but this rating will help the city and its taxpayers when it comes to borrowing money for mission critical capital projects.”

“The focus of the Finance Department has been the internal control environment” said Finance Director Bruce Miller.  “Through a concerted effort we have worked with external auditors, rating agencies and the Financial Advisory Commission to evaluate opportunities to improve operations and procedures.”

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