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Sugar Land, TX - Fitch Ratings and Standard & Poor’s Global Ratings both affirmed Sugar Land’s “AAA” bond rating in connection with the issuance of General Obligation (GO) and refunding bonds approved by City Council on Oct. 15.
The city sold $21.6 million in GO Improvement and Refunding Bonds, as planned in the fiscal year 2020 budget.
Refunding bonds refinance existing bonds to capture interest savings, thereby lowering the cost of borrowing funds. The GO bonds refinance $13.6 million in currently outstanding debt to achieve savings of more than $1 million over the next seven years.
The refunding was completed along with $10.26 million in GO bonds, wrapping up the remaining voter-approved bonds from 2013. The three park projects to be funded from this issue – Ditch H Trail; First Colony Trail; and Brazos River Park, Phase II – are in the fiscal year 2020 budget approved in September. City Council increased the 2019 homestead exemption from 10 to 12 percent to offset the property tax impact to residents.
The city also issued $16.7 million in certificates of obligation to fund priority projects that are ready for construction and approved in the fiscal year 2020 budget. Projects include drainage improvements, pavement rehabilitation and facility rehabilitation.
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 rating reflects the city’s overall strong budget monitoring that has historically yielded consistent and positive budgetary performance.
Fitch recognized the city’s strong operating performance supported by its ability to raise revenues, solid expenditure flexibility and strong operating performance.
“The city's strong budget management practices are evidenced by reserve replenishment during periods of economic expansion and no deferral of required spending,” wrote Fitch. “Management also has a history of prompt responses to changing economic conditions.”
The affirmation of the AAA rating recognizes the commitment by City Council and staff to ensure sound financial oversight of city resources.
“The AAA bond ratings reflect an independent assessment and a high confidence in the city’s ability to manage its finances,” said City Manager Allen Bogard. “The AAA rating allows us to borrow at the lowest rates available and generate additional savings through refunding issues, allowing us to consistently maintain one of the lowest tax rates in the state and provide the high-quality services that our residents expect.”
The Sugar Land 4B Corporation also issued $24.7 million in refunding bonds on Oct. 15, netting $5.4 million in debt service savings during the next 16 years. The savings is equal to 16.9 percent of the refunded principal on a present value basis - well above the 3 percent savings threshold identified by the city’s financial policies.
The 4B Corporation is funded through a one-quarter of one percent sales tax for economic development approved by voters in 1995 and carries its own bond ratings, affirmed by Standard & Poor’s at A+ and Moody’s Investors Service at Aa3.
The city’s focused but aggressive economic development program helps to grow commercial property tax values with the goal of benefitting residents through investment of restricted revenues in new quality of life amenities and ultimately supporting the city’s ability to maintain one of the lowest tax rates in the state of Texas among similarly-sized cities.
Moody’s rating commentary reflects positive growth in the local economy with a favorable debt service coverage with dedicated sales tax revenues. Savings from the 4B refunding issue must be used in accordance with allowable uses for the economic development sales tax.
All three bond issues received significant interest from the municipal bond markets, achieving historically low interest rates that were available on the day of the sale. Low interest rates translate into savings from the refunding transactions, which means that residents benefit through lower costs for projects.