Davenport’s bond rating took another hit Thursday as it was downgraded from “AA” to “A with a negative outlook” by Standard & Poor’s Ratings Services.

Standard & Poor’s follows Moody’s Investor Services decision earlier this month that kept the city’s bond rating at Aa2, but downgraded its outlook as negative.

Standard & Poor’s was concerned by the city’s reliance on borrowing among different city funds, depleted cash position, a weakened fund balance and elevated debt service charges.

“The downgrade and outlook revisions reflect our view of the city’s continued limited liquidity position, the temporary use of restricted cash and bond proceeds to avoid cash flow borrowing, and general fund reserves that rely on long-term receivables,” analyst Blake Yocum said in an Standard & Poor’s release.

Standard & Poor’s A rating means the city has “a strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.” Moody’s considers Aa-rated bonds as being high-quality bonds subject to low credit risk. Both companies’ ratings for Davenport are the third-highest they offer.

The city has already addressed issues raised by the rating service, interim Finance Director Brandon Wright said.

“The city has taken the necessary actions in our two-year budget plan to improve fund balances,” he said. “Moody’s reviewed the exact same information as S&P and affirmed the city’s rating as the third-highest credit rating available.”

That wasn’t enough for Standard & Poor’s, which could take further action if the city doesn’t make “substantial progress” toward repaying its interfund loans.

Last year’s budget included a property tax rate increase and fee increases. City officials have said the acquisition of the Rhythm City Casino for at least $46 million will improve revenue and help increase fund balances.

Bond buyers flocked last year when the city sold bonds after getting downgraded by Moody’s from Aa1 to Aa2 and will again, Mayor Bill Gluba said.

“It is still high, and the biggest issue they had was with fund balances and cash reserves,” Gluba said. “We’ve got to build up fund balance, and we will by acquiring the casino. We are concerned about it, but we are still highly rated.”

Last year, Standard & Poor’s kept the city’s rating at AA. Standard & Poor’s highest rating is AAA.

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(26) comments

riverdog

Images
Will you with your supreme knowledge tell us how much the City now has in reserves. It used to be 6.3 million dollars. What is it now?

R A Cole
R A Cole

I see an obvious trend in this situation. The City of Davenport has way too much debt and is considering taking on a whole bunch more debt to buy the casino boondoogle. The City of Davenport has incurred a large amount of debt and had their credit rating lowered. Mayor Gluba is a liberal Democrat. The federal government has incurred a huge record deficit and also had their credit rating lowered. President Obama is a liberal Democrat. Maybe this is just a coincidence, but perhaps this demonstrates that liberal Democrats are reckless with taxpayer’s resources. Meanwhile, the State of Iowa is in great financial shape and the state is headed by Governor Brandstad, a conservative Republican.

Uncle Paddy

@bifis28
An investor is someone who commits capital in order to gain financial returns...not simply a buyer of bonds. Is the city of Dubuque the only example? If so then it is a wonderful idea for the city of Davenport to purchase the casino based on this large sample size and proven track record of success. If leveraging a city to its teeth based on "projected" future returns from gambling revenue is such a great concept, then why doesn't every city in the United States do it?

LNorman

Quadity.
then why are trrying to sell it if their making money?

QuadCityImages
QuadCityImages

Because if they don't, the city is going to sue them for breach of contract. Not only are they violating their agreement with RDA by making Davenport's casino the secondary overflow barge for Bettendorf, but they also signed a contract to build a 12 story hotel on the riverfront that you may notice they never did. Better to extra $50 mil from Davenport than spend a bunch of money on lawyers and still potentially lose their ability to operate Davenport's license.

Deep sea

So why aren't there a whole line of other professional casino developers in line to buy this casino? Why is the city the only taker?

Uncle Paddy

This whole casino project smells like feet. Not a single investor, investor group or corporation was interested in the idea. It is their job to make money...and I don't know many for profit businesses who would turn down $10+ million a year in pure profit. The truth is not being told...people need to be made aware. If you believe it is a good idea for a city to be in the casino business let me know, I have a unicorn who burps skittles that needs a home.

Oh...quickly give me the best examples of a city owned casino anywhere in the United States.

bifis28

First of all, the investors are the people that buy the bonds. Secondly, the City of Dubuque has owned the "Mystique" casino for years. They are doing quite well with it.

Orpheus

Dubuque has a MUCH better bond rating than Davenport.

Orpheus

The City of Davenport government has proven itself completely worthless dealing with money. Anyone that trusts this government with starting a casino is a fool. You and your money will soon be parted.

QuadCityImages
QuadCityImages

Who do you think the 3 groups that submitted proposals are? All 3 were willing to invest plenty of money in a Davenport casino.

senor citizen

S&P did not downgrade Davenport as much as the mayor, city manager and most of the aldermen.

Contemptio

The lower the bond rating, the higher the cost to borrow money.

But who cares, it's the taxpayer that's on the hook.

georgeandersonxyz

Is operating casinos, selling lottery tickets, and exploiting people's weakness for gambling really the role of government?

TruthOnlyBeTold
TruthOnlyBeTold

Ironic, that government raises the tax rate on tobacco products to reduce it's use, for a healthier public and at the same time, promotes gambling for no other reason than to raise funds, which in turn promotes social decay of our society...

ExQC911

Before you blame the city of Davenport you should look around and see how many cities would love to have an A rating, plus it was only S&P that decreased the rating.

QuadCityImages
QuadCityImages

You naysayers have got to be kidding. There's no easier way to make money than a casino. Even the current casino, which is simply terrible, is making millions per year. Having someone own it who actually WANTS it to succeed will only bring in more profit. Property tax payers will be benefiting from that, not hurt by it.

PainfullTruth

You naysayers have to be kidding? Seriously? You can't be serious....

If there is "no easier way to make money" then why are NO banks behind this project? Why are there no investors willing to put their money into this? Why is the city of Davenport selling $46+ million dollars in bonds to fund it?

How will the property owners of Davenport benefit from having a downgraded credit rating? Bonds are now less attractive to bond buyers. Explain to me how this is a good thing?

Stop spending tax payer money. If it is such a GREAT idea with taxpayer money, then it would be a FANTASTIC idea with banks and investors money. Stop spending tax dollars on projects like these.

QuadCityImages
QuadCityImages

Did you read the article? The city is exploring using a bank instead of bonds. Its not that banks aren't behind it, its that municipal bonds usually have lower interest rates than banks, and probably still will.

PainfullTruth

Yes I DID read the article. Do you actually think that the city went to a bank before the option of selling bonds? Yes they did and was probably turned down. What does the city care about lower interest? It isn't their money they are spending. Do you think a bank will be interested in a city that has been unable to pay thier bills in a timely manor, spends $$$ on stupid projects like the bridge to nowhere (among others, too many to list)?

Do you believe everything that the city tells you or do you actually look at facts and figures? You seem to have very rosey glasses when it comes to supporting the city and their financial decisions. Almost like you are connected somehow? Wierd.....

QuadCityImages
QuadCityImages

Painful, I would love to know what bill the City of Davenport has ever been unable to pay in a timely manner? This is a revenue source. So spending $60M now can potentially make Davenport $10M+ per year for decades. That's not a bad deal, and while $10M will make a huge difference in Davenport's budget, its not enough to get a big gaming corporation all that excited.

PainfullTruth

QuadCityImages,

Lets start with the cut to the firefighters and police, lets talk about that cut. You would rather have a bridge to nowhere, flower planters in the street and round-a-bouts instead of fire & police?

And just to correct you, the city is not SPENDING $60 million they are borrowing, spending, more borrowing and more spending. They will borrow $60 but what is the payback amount? How much money in infrastructure will need to be spent to service the interstate location?

A bad deal is when people like you keep supporting more and more spending of tax dollars in hopes of a big payday. I realize that you love the smell of flowers but they aren't blooming in Davenport. Just look at all the other cities in Iowa that are thinking of building casinos now. Davenport will just be another in the chain.

The other factor that you fail to discuss is that the city of Davenport may not even receive a license from the Iowa Gaming Board. There have been news reports that Davenport may not be renewed their license when it expires. Is Davenport going to build this AFTER they receive word of the license extension or will they assume they are going to get it? Just like Davenport hasn't planned for funding, financing, private investors, banking, public support, etc, they haven't planned for the loss of the gaming license.

If you and your friends on the city council are so happy and secure with your position on this issue, I invite you to put it on the ballot for a vote. That is if you feel strongly in the will of the people instead of just the chosen few on the council. Ask the citizens of Davenport if they want their $60 million (plus interest) to be spend on this "awesome" idea.

If this does get approved either by the city or by the citizens, will you pack up the $7 million dollar bridge to nowhere and take it with you?

Deep sea

You government people say that about everything you want to spend money on. If we build it they will come.. This is not a movie.

davenportchick

Impeach Gluba, yes we CAN impeach him. He is our first one to get rid of. Then after him, it is time to oust Malin, his little buddy. Ok, if this deal goes through which is stupid and foolhardy with the casino business without US the taxpayers voting for or against it, then we are all up a creek without a paddle when it comes to our homeowners taxes. They will hit us first and HARD, This isn't some huge metropolis that has a big city budget.

A_davenport_resident

And we are going to borrow more money to buy a questionable casino? Hang onto your wallet if you live in Davenport! Bet city services will be cut because of this..... You gotta pay the bond somehow. This isn't just wrong, it borders on criminal......

riverdog

One question to ask is how much cash on hand does the City have. It used to be over six million dollars. What is it now?

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