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.