COVINGTON, KY – Tuesday evening, Moody’s Investors Service assigned a Baa1 underlying rating to the City’s $9.4 million General Obligation Refunding Bonds, Series 2016.
Although Moody’s affirmed the City’s Baa1, they changed the former negative outlook to positive primarily due to the City’s strengthened financial management and improved fiscal planning.
Moody’s based the City’s rating on various detailed considerations including a large stable tax base, departmental cost savings, recent policy implementations, and the elimination of the City’s reliance on short-term debt.
“Our priority for the last several years has been to focus on and improve our financial policies and practices,” City Manager Larry Klein said. “Moody’s change in our rating outlook from negative to positive is a major step forward as it validates that our hard work is beginning to pay off.”
As stated in Moody’s report, an important contributor to the positive outlook rating includes Covington’s enactment of the Fiscal Stability Ordinance which established a formal policy for developing future budgets and for allocating any carryover funds for years when the City’s inflows exceed its outflows.
In following the course of perseverance, the City remained steadfast and was able to end its 40 year reliance on short-term borrowing for cash flow purposes by paying off its Tax Anticipation Note (TAN) and not renewing it. As noted by the Moody’s report paying off the TAN and not renewing it, “…eliminated the city’s need for cash-flow borrowing, an important consideration for the positive outlook”.
Additionally, the City implemented new financial reporting software and processes allowing for more oversight and improved cash management practices.
“Improved cash management has dramatically helped to ensure that cash is on-hand to meet the City’s financial obligations without short-term borrowing. Stabilization of day-to-day fiscal operations allows us to focus more on managing the City’s long-term debt,” said Director of Finance and Operation Lisa Desmarais.
Due to these positive changes, Moody’s unveils an optimistic outlook for future fiscal performance and offers confidence the City’s General Fund reserves and liquidity will continue to improve at fiscal year-end 2016. They believe years of materially improved financial operations could lead to another upgrade in the rating as typically a change from a negative outlook to a positive one indicates a higher likelihood of a rating change in the near term.
Included in the City’s recommended fiscal year 2017 budget are plans to introduce a new capital reserve fund to cash-fund future capital projects instead of issuing additional long-term debt. The Moody’s report points to this change and affirms that this contributes to, “a continued positive trend of improving financial performance and metrics as reflected in the positive outlook”.
“Hard work and hard decisions, remaining focused on our goals of responsibility, sustainability and investment has led to this upgrade in the City’s financial outlook,” stated Mayor Sherry Carran. “These accomplishments are not due to one person but through a team of quality City staff, supportive Commissioners, and strong collaboration. It takes all of us working together.”