South Jordan City lands ‘unheard of’ AAA bond rating
Jul 25, 2019 03:31PM
By Jennifer J Johnson
South Jordan’s AAA bond ratings speak to the city’s sound financial management (David Sallay/Wikimedia Commons).
By Jennifer J. Johnson | [email protected]
When it comes to financial freedom, a good credit rating is essential.
The same is the case for governments and other entities, be they school districts, townships, cities, counties or states, a good credit rating in essential.
The name is bond—municipal bond
Having good credit, from a government point of view, boils down to having a good bond rating.
Securing a good bond rating requires an entity to be financially solid to begin with and then to present that strength to an elite group of investment houses. If properly convinced, the house expresses its confidence with a positive bond rating. Just like with consumer credit, the better an entity’s bond rating the more positive the credit terms will be.
With that in mind, this May, South Jordan City Manager Gary Whatcott and Chief Financial Officer Sunil Naidu joined the city’s longtime financial adviser Laura Lewis on a financial roadshow to New York City. The goal was to bring back the strongest bond ratings possible for the city to finance its new public safety building. And, in so doing, prudently finance city projects with the best-possible financial terms for taxpayers.
The trio spent several hours—in separate meetings—presenting SoJo’s financials to both the $6 billion S&P Global and Fitch Ratings—two of “the big three” credit-rating agencies. These agencies are nationally recognized statistical rating organizations who have been designated by the United States Securitas and Exchange Commission for almost 50 years to assess strength of entities seeking financing.
Triple A in the municipal-financial sense, not baseball-league sense
After returning to Utah and waiting the requisite few weeks’ timeframe, the good news was received: South Jordan City had received a “AAA” bond rating.
While “AAA” refers to minor-league play in professional baseball, in municipal math, it represents the best-possible major-league ratings of future-looking confidence in the city and expression of overall creditworthiness.
Naidu explained there are two types of bonds cities opt for—either general-obligation bonds or municipal-revenue bonds.
A general-obligation is backed by the credit and taxing power of the issuing jurisdiction rather than the forecasted revenue from a given project. Such bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or through project revenue.
Municipal-revenue bonds, on the other hand, are backed by a variety of income-producing sources. From a city standpoint, these are preferable. If a city is able to achieve a favorable bond-rating status, the traceable forms of city revenue are able to yield a better interest rate for the city, and thus, result in dollar-savings for the city’s tax-payers.
“Anytime we are looking to finance something, that credit rating is critical,” said Whatcott.
Whatcott said he is surprised about how deep the “homework” these “very sophisticated” municipal credit-rating agencies do.
“Unheard of!” is how Naidu characterizes responses from his municipal finance colleagues across the state, in learning of the city’s new bond-rating achievement. “I don’t know of any city in Utah that has this type of rating in the state,” he said.
Naidu credits the strength of “the city itself” for the team’s earning the excellent bond rating.
“Your history tells a lot of story,” Whatcott said.
Naidu indicated SoJo’s economic strength, job growth, per-capita income and debt capacity all impressed both ratings boards evaluating the city. (Lewis notes that cost for securing a bond rating can be as high as $18,000, and that only two, versus all three ratings organizations’ say-so is required to become bondable.)
Whatcott traced the success back to the city’s mindful budgeting, careful maintenance of multi-billions of dollars in infrastructure and other assets, and the historical and current conservative spending nature of the city.
Along this line of thinking, Whatcott pointed out that SoJo’s public safety building cost what he said was $10 million less than a similar facility planned in neighboring Utah County.
The right stuff, the right staff
Achieving the positive bond rating is also a matter of “the right stuff.”
“Making sure you have the right staff, the right software and the right data collection, and that you are collecting the right data,” is all part of the formula, Whatcott said.
Getting a good bond rating for SoJo “means that your money is being watched after,” Whatcott said. “[It means] your taxes are not being frivolously wasted and that there is good financial planning and good financial policies.”
It echoes South Jordan Mayor Dawn Ramsey’s complimenting the SoJo staff earlier this year in her “Vision” speech about the city.
“Our staff is the best in the state,” she said at the time. “I’m serious. Their efforts not only make South Jordan City function incredibly well, they also make us a brilliant, shining star in the state, one that other cities constantly look to for guidance.”