Sugar Land, TX – Fitch Ratings and Standard & Poor’s Global Ratings recently reaffirmed Sugar Land’s “AAA” bond rating in connection with the city’s plan to reissue $78.2 million in general obligation refunding bonds, an action estimated to save approximately $14.9 million.
The “AAA” rating applies not only to the refunding issue but to all of the city’s outstanding tax-backed debt and translates to continued lower borrowing costs for taxpayers and ratepayers. This means that the city can afford to deliver more high-quality projects to residents while still maintaining the second lowest property tax rate in Texas among cities its size and with lower than projected future utility rates.
The ratings are a reflection of the city’s strong financial resiliency – including fiscally conservative budgeting and proactive responses to economic conditions.
The sale of the $78.2 million general obligation refunding bonds took place on Dec. 5. Refinancing existing bonds to capture interest savings lowers the cost of borrowing funds. The issue to be refunded is $80.9 million in Certificates of Obligation that were issued in 2011 to finance construction of the Surface Water Treatment Plant and other improvements necessary to meet the mandated 30 percent reduction in groundwater use. Preliminary figures show an average annual debt service savings of about $622,000 over the 24 years remaining on the bonds, which are repaid through utility revenues.
The “AAA” rating is the highest rating a bond can carry and represents a bond with minimal risk due to the strong financial management practices of the city.
Standard & Poor’s views the city’s management as “very strong, with ‘strong’ financial policies … indicating financial policies are strong, well embedded and likely sustainable.” Factors cited by Standard & Poor’s included:
Fitch recognized the city’s strong operating performance supported by its ability to raise revenues, solid expenditure flexibility and strong operating performance.
An excerpt from the Fitch analysis reads, “The city's strong budget management practices are evidenced by reserve replenishment during periods of economic expansion and no deferral of required spending. The city council and management also have a history of prompt responses to changing economic conditions; the most recent example is fiscal 2018 budget adjustments and a reduction in planned capital spending/borrowing over the next five years in response to a more cautious tax revenue outlook.”
The city of Sugar Land has achieved its strong fiscal health through years of financial policy development. The comprehensive Financial Management Policy Statements have been in place since 2002 and are reviewed and adopted by resolution every two years, allowing for updates to be made as the city develops. The policies are currently under review and will be discussed with the City Council in early 2018 to determine if any changes are needed.
The affirmation of the top bond rating recognizes the commitment of City Council and staff to ensure sound financial oversight of City resources.
“The AAA ratings demonstrate confidence in the city’s ability to manage its finances,” added City Manager Allen Bogard. “Our proactive efforts to ensure resiliency and financial strength support the quality services our residents expect and enable us to have one of the lowest tax rates in the state.”