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Posted on: February 2, 2023

Moody's raises City bond rating three levels to A2

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Moody’s Investors Service announced in late January that it has upgraded he City of Taylor’s bond rating three levels to A2 from Baa2. The A2 rating puts the City’s investment-grade bond solidly into the upper medium grade. Moody's provides international financial research on bonds issued by commercial and government entities.

The issuer and general obligation limited tax debt ratings each improved in identical fashion. The ratings reflect the City's credit quality and ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. This action concludes a review that started in November 2022 in conjunction with the release of the US Cities and Counties Methodology.

The A2 GOLT rating is placed at the same level as issuer rating because the building authority bonds are non-contingent lease obligations that are ultimately backed by the City's full faith and credit pledge, backed by the its authority to levy property taxes within its charter, statutory and constitutional limitations.

"This is great for our community and it shows the City's stability,” Mayor Tim Woolley said. “We thought we might get a bump of one or two spots, but the fact that we jumped three spots was a very nice surprise." 

According to Moody’s, the A2 issuer rating balances the city's strong reserves and recent track record of solid operating performance against its below-median resident wealth and income; weaker regional economic growth over the past five years compared the nation; and limited revenue-raising flexibility. Although the City's leverage and fixed-costs ratio are materially above sector medians, they have declined significantly following modifications to other post-employment benefits (OPEBs).

The City has paid its OPEB debt down significantly by making contributions annually, while also making adjustments to various contracts over the past decade. At one time, Taylor had the highest unfunded OPEB liability in Michigan, but it has fallen over $200M to just over $110M. 

Like all Michigan cities, Taylor is also subject to strict property tax rate limitations (like the Headlee Amendment, for example) that can cause revenue declines in times of taxable valuation decline and slow the pace of revenue growth in times of valuation growth. The most recent City audit by Plante Moran noted that taxable value is still rebounding from the great recession of over a decade ago. It has been on the increase since 2017, but is not predicted to rebound to 2010 levels until approximately 2029.

According to Moody’s report, Taylor’s financial position will likely remain stable, because of the City's prudent budget management. Roughly three-quarters of the City's operations are related to governmental activities. Taylor also operates several enterprises, primarily water, sewer and golf.

According to the investors service, reduced long-term liabilities and fixed-cost ratios along with a material increase in resident wealth and income levels could lead to further upgrades in the City’s ratings. On the other hand, material decline in available fund balance and liquidity, and substantial increase in long-term leverage and fixed-cost burdens could lead to a decline in Taylor’s ratings.

For more on US Cities and Counties Methodology click here.

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