BRISTOL, Va. — The city of Bristol Virginia received some good financial news Friday as Moody’s Investors Service upgraded the bond rating on its long-term debt.
The New York-based rating agency gave the city a two-level upgrade from Baa2 to A3, according to a report issued Friday. This marks the third consecutive upgrade since 2017.
The A3 rating is the lowest of the agency’s seven A ratings. It considers the bonds as “medium grade with low credit risk,” according to Moody’s website. The previous Baa2 rating showed the city was a “moderate credit risk.”
“The upgrade to A3 reflects the city’s improved financial position with healthy fund balance and liquidity as well as a manageable overall fixed cost burden following the restructuring of debt,” according to the report. “The rating also reflects the city’s moderately-sized and growing tax base, below average resident income levels, above-average debt and pension burdens and progress toward reducing the reliance of the solid waste fund on the city’s general fund.”
City Manager Randy Eads said the upgrade was somewhat of a “surprise” but comes on the heels of a July conference call with Moody’s representatives.
“When we spoke with Moody’s back in July they were pleased with what we were doing. I did not expect a credit rating increase, and I certainly didn’t expect a two-level credit rating increase,” Eads said. “We went over the city’s financials for the past two years, we discussed the policies we put in place, and we were discussing how those policies have had a positive impact on our cash balance.”
Over the past year, the City Council has enacted a series of financial policies to limit spending and borrowing, making officials at every level more accountable and establishing dedicated reserve funds.
The city has also eliminated its reliance on short-term tax anticipation note borrowing between semi-annual real estate tax collections by building up its general fund balance. At the end of fiscal 2018-19, the city had more than $19 million in its general fund account, significantly more than the $14.2 million in June 2018 and 2.5 times more than the $7.4 million balance in June 2017.
However, the city still has virtually no capacity to borrow money and significant general obligation bond debt tied to its solid waste landfill and The Falls commercial center.
“If we were a normal locality, where we could go out and borrow money, this [upgrade] would mean we would get a lower rate,” Eads said. “What it means for Bristol is it allows us to potentially refinance some debt at a lower cost at some point in the future — which is a savings for taxpayers.”
Eads said the city’s ultimate goal is to continue improving its financial position and work toward Moody’s highest rating — Aaa. Mayor Neal Osborne said the city will work toward further improvement.
“It’s due really to a lot of hard work by city staff. They’ve been good stewards of taxpayer money, and they’ve worked with the policies we’ve put in place,” Osborne said. “I think if we can hold the same policies, having reserves, setting aside additional monies when we can and we’re fiscally responsible going forward, I think we can see more upgrades.”
Factors that could lead to further upgrades include “material reduction in the city’s debt burden, a significant increase in the city’s reserves and liquidity, a sustained trend of favorable operations in the solid waste fund, including reduced general fund support or substantial tax base growth and expansion coupled with improvement in income levels,” according to the report.