Thursday, October 18, 2018

Standard & Poor lowers City of Joplin's credit rating

(From the City of Joplin)

As part of a normal, periodic review process, Standard & Poor recently announced its Global Ratings on the City of Joplin. The City’s long-term rating on the City’s certificates of participation (COPs) is noted as ‘A+’ from its previous ‘AA-’, and its issuer credit rating (ICR) has moved to ‘AA-’ from ‘AA’.

A municipal credit rating is a current opinion of a municipality’s overall financial capacity to pay its financial obligations based upon relevant risk factors. Credit ratings are widely accepted by investors as efficient tools for differentiating creditworthiness.

According to S&P, the City’s rating was lowered by one level due to their view of a weak economy within the city, however they stated that the outlook is stable.





“In its review of the City’s standing, many factors are considered, and this change reflects how S&P views the overall economy of the Joplin area,” said City Manager Sam Anselm. “Although there are concerns about the area’s economy and our pension plan, within their report they note the City’s management as strong with good financial policies and practices as a credit positive factor. There are other noteworthy items in the report that affirm the City’s rating in the ‘AA’ category.”

S&P comments that the City’s budgetary flexibility and liquidity is strong, along with the its debt and contingent liability profile. The City has an existing rapid amortization of debt, with 68.5% retired in ten years. This is in part due to the final payments for the purchase of the Newman Building, which serves as Joplin City Hall.

Within the report, S&P notes a credit weakness due to Joplin’s large pension and other post-employment benefit (OPEB) obligation, noting the poor funding ratio for the Police and Fire Pension Plan is 62.4%.

“This should come as no surprise to those who have been following recent meetings of the Joplin City Council,” said Anselm. “In past years, the Police and Fire Pension Plan has been discussed and most recently has been identified within budget work sessions to determine a long-term funding resolution.”

S&P Rating Services has recently updated their methodology and assumptions for assigning issuer credit ratings. The following seven key factors are used in the assessment and scoring:
Institutional framework (10%)
Economy (30%)
Management (20%)
Budgetary Flexibility (10%)
Budgetary Performance (10%)
Liquidity (10%)
Debt and contingent liabilities (10%)

Scores for each factor range from '1' (the strongest) to '5' (the weakest). The economy score receives a 30% weight and management receives 20%. These scores receive the highest weight because of management's ability to tap the local economic base for additional revenues if it chooses to do so in a timely manner. The remaining categories each have a 10% weight in the score.

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