Returning tax-exempt buildings to the public tax rolls – like this one on Fifth Street that was recently sold by Gateway Community & Technical College to a private buyer – is one way to improve the City of Covington’s financial position.
Wall Street affirms progress in Covington
COVINGTON, Ky. - Moody’s Investors Service today upgraded the City of Covington’s credit rating and also gave the City a “positive outlook” going forward.
Citing “material improvement in the City’s liquidity and reserve position” because of stronger financial management, conservative budgeting, and strategic moves to better manage operations, Moody’s upgraded to A2 from A3 the underlying rating on the City’s general obligation bonds.
“Wall Street is affirming what the City is doing,” Finance Director Muhammed Owusu said. “This is the wider financial market showing increased confidence in Covington.”
City officials said the upgraded rating and “positive outlook” will have practical and valuable impact:
- If the City were ever to borrow money by issuing bonds, the interest payments on loan payments would be lower and cost taxpayers less.
- And Covington’s ability to recruit new businesses and jobs is strengthened, given that most investors “want to move to an area that is financially stable,” Economic Director Tom West said.
Covington officials said they were thrilled with the upgrade - which officials had aggressively sought - but actually had hoped to move two notches. The “positive outlook,” however, is a signal from Moody’s that the City is on a “good trajectory” toward an even higher rating in the future, City Manager David Johnston said.
“We’ve worked really hard in the last year or so to move management of the City and especially its finances to a higher level, and this is outside affirmation from a national, independent agency that we’re succeeding,” Johnston said. “Obviously, however, we’re not finished.”
To see the press release distributed in New York today by Moody’s, click HERE.
While much of a credit rating score is based on hard economic and financial numbers, the credit rating agency and the City’s financial advisers specifically mentioned several actions by the City that have collectively created a stronger narrative that factors into the evaluation:
- A reorganization of the City’s management structure.
- Stable leadership and full staffing of its Finance Department.
- The creation of a long list of formal policies and procedures in Finance, notably governing debt management, investments of cash reserves, accounting procedures, procurement, and long-term budgeting.
- A more strategic and smarter approach to economic development incentives, such as industrial revenue bonds, to ensure that those investments provide positive return to the City.
- Steps taken to reduce the City’s debt, and stronger reluctance by City leaders to take on additional debt.
The City’s attempts to get a two-notch upgrade were held back by the economic demographics of its population, historical debt, and steadily increasing pension obligations mandated by state government.
In giving its rating outlook for the future, Moody’s mentioned several factors that could lead to either an upgrade or downgrade. Taken together, Johnston said, those factors dictate the need to continue and accelerate some of the City’s priorities and approaches going forward:
- Its strategic but conservative approach to spending.
- Growing the local economy by creating jobs that bring in higher payroll and net profits revenue, which together provide the bulk of funds for City services. This is where the City’s recently designated Opportunity Zones create potential.
- Returning vacant and tax-exempt properties to the tax rolls so they can be working for the taxpayers. Examples are the former state-owned office building on Garrard, the former Senior Citizens Center owned by Gateway Community & Technical College on Fifth Street, (both of which were sold recently to the private sector), proposals for the former YMCA building on Madison Avenue, and many other smaller pieces of property that the City owns.
- Improving the income of residents by creating better job opportunities.
Toward that last goal, West said, the City has started to look very strategically at things it can do to attract targeted investment as well as help existing businesses with issues that are holding them back. For example, a Business Roundtable focused on businesses in the 3L Highway/Madison Pike area held earlier this week identified some pressing needs related to things like transportation and child care that the businesses said were keeping them from building a qualified workforce.
“What you’re seeing is better awareness at City Hall of how no decision should be made in a vacuum,” Johnston said. “Our economic development strategy, our financial stability, our budget and its ability to pay for the high-level services - all those things are intertwined.”