Paso Robles bond rating upgraded to AAA
Standard & Poor’s Ratings Services has upgraded the municipal bond rating for the City of Paso Robles Measure 98 general obligation bonds from “AA-” to “AAA,” the highest rating available. The city’s director of administrative services, Jim Throop, made the announcement in a statement on Monday.
The bond rating is based on several factors, including the city’s maintenance of good reserves, budgetary performance, financial liquidity, strong financial practices including a multi-year financial and capital improvement plan, and formal monitoring of financial investments and debt issuance. Also considered were buying income per capita, diversity of economy for San Luis Obispo County and surrounding region, and the low unemployment rate.
“The stable outlook reflects our view of the city’s strong finances and stable economy, combined with the projected improvement in economically sensitive revenues,” the Standard & Poor’s says. “We do not anticipate negative rating pressure during the two-year outlook horizon. We do not anticipate negative rating pressure during the two-year outlook horizon; however, a weakened financial performance or a rapid deterioration in the city’s debt profile could lead us to lower the ratings.”
Highlights from the Standard & Poor’s rating report:
• We consider Paso Robles’ economy to be adequate, with a projected per capita effective buying income of 91% of the U.S. and per capita market value of $123,000. The city participates in the broad and diverse San Luis Obispo regional economy, and the county’s overall unemployment rate is 8.1%.
• In our opinion, the city’s budgetary flexibility is very strong, with available reserves equal to 59% of general fund expenditures in fiscal 2012 and estimated reserves of nearly 53% in fiscal 2013. In our view, the city’s consistent maintenance of fund balance in excess of 30% further strengthens its financial flexibility.
• Recent budgetary performance has been strong, in our view. The district posted a general fund surplus of 12% in fiscal 2012, and preliminary estimates for fiscal 2013 show another surplus of roughly 4%. Total governmental funds operations, adjusted to smooth capital expenditures, increased by 8.4% of expenditures in fiscal 2012. The city does not currently have an estimate of fiscal 2013 governmental funds performance.
• Supporting the city’s finances is liquidity we consider very strong, with total government available cash equal to 99% of noncapital governmental fund expenditures and over 7x annual debt service. We believe the city has strong access to external liquidity and limited exposure to predictable liquidity risk.
• We view the city’s management conditions as very strong with strong financial practices, including comprehensive, multiyear financial and capital improvement planning, formal monitoring of investments and debt issuance, and reserve policies across multiple budget areas.
• In our opinion, the county’s debt and contingent liabilities profile is weak, with total governmental fund debt service equal to 13.7% of expenditures in 2012, and with net direct debt equal to 87% of total governmental fund revenue. The city’s overall net debt burden represents less than 3% of market value, which partially offsets the higher carrying charges and direct debt.
• The county participates in the California Public Employees’ Retirement System to provide pension benefits for employees. It has contributed 100% of the annual required contribution for pensions in each of the past three years, and it funds other postemployment benefits (OPEBs) on a pay-as-you-go basis. Combined pension and OPEB expenditures in fiscal 2012 were 11.5% of total governmental funds expenditures.