City's high credit rating escapes any downgrade

Two of the nation's top bond rating agencies maintained the city of Colorado Springs' credit rating this week despite a weakening local economy, looming budget shortfalls, dwindling reserves and a ballot issue that could cut city revenues by $27 million a year.

Moody's Investor Service and Standard & Poor's reaffirmed their high ratings on the city's debt, avoiding a potential downgrade that City Manager Penelope Culbreth-Graft said Thursday both agencies were considering.

The city met with both agencies this month about ratings for $23.7 million in certificates of participation the city plans to issue next month to pay for new fire stations downtown and in Stetson Ridge and Venezia Park in Briargate.

The city's financial adviser, Kansas City, Mo.-based George K. Baum & Co., warned city officials this month it had "significant concerns" that Moody's would lower the city's credit rating as a result of dwindling reserves, said Terri Velasquez, the city's chief financial officer.

Moody's was most concerned that the city's reserves will fall by year's end below the 10 percent of budgeted spending as required by city policy, she said.

A lower rating would have boosted the interest rate on debt issued by the city as much as 0.5 percentage points, which "could have had quite an impact over time on the city's finances" through higher interest payments, Velasquez said.

Both Velasquez and Lisa Bigelow, director of the city's budget and economic development department, met this month in San Francisco with analysts from Moody's and Standard & Poor's to talk about budget cuts made last week to avert an $8 million revenue shortfall this year and further cuts needed to avoid a $23 million shortfall in next year's budget, which Velasquez said were key to avoiding a downgrade.

Moody's said its rating reflected "a weaker than average, but still adequate general fund balance (reserves), limited financial flexibility given restrictive anti-tax measures and a sluggish economy."

But the agency agreed with city officials that "changes in budget practices, including addressing budget gaps through permanent expenditure cuts, rather than one-time measures" will stabilize reserves in the short term.

The agency said it remains concerned the city is "entering challenging economic times, potentially creating further budgetary stress given the city's already thin financial position" amid a 3.7 percent drop in sales and use tax collections this year.

Moody's also said a ballot initiative that would phase out $27 million a year in payments in lieu of taxes from city enterprises would have "a significant negative impact" on city finances.

Standard & Poor's praised "the city's record of financial stability and evidence that management and the city council are addressing the medium-term budgetary challenge of declining sales tax revenues such that any decline in its financial position will be short-lived," but said the city's credit quality is constrained by "limited revenue flexibility and a recent downturn in sales tax revenues."

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