Apr 21, 2009

Our County Gets Highest Bond Rating

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By: Evelyn Pyburn, Big Sky Business Journal

Yellowstone County Gets Highest Bond Rating

While nationally, bond ratings for towns, counties and school districts are being downgraded in unprecedented ways, the bond rating for Yellowstone County has been boosted three levels, giving it one of the highest bond ratings in the country -- and the highest in Montana, including that of the state.Standard and Poors gave Yellowstone County a AA+ bond rating last week, increasing it over its last rating of A+ in 2001.

The AA+ rating is as "good as it gets," said Bridget Ekstrom of D. A. Davidson, who is assisting the county in the process of refinancing a MetraPark bond, in order to take advantage of historic low interest rates. By refinancing, the county will save taxpayers about $30,000 annually, depending on the rate of interest they get on the sale. The county’s extraordinary bond rating should result in greater savings by getting the lowest possible interest rates in the bidding process. The rating tells prospective investors the level of risk they face, and the less the risk, the lower the interest rates they are willing to offer.

Yellowstone County Commissioner Jim Reno was quick to credit the financial stewardship of the County’s finance director, Scott Turner, for the soundness of the county’s financial condition. Turner has overseen the county budget and investments for over 20 years.

"It is comforting to see that national bond rating firms recognize our conservative fiscal approach toward the management of Yellowstone County," said Reno, "Scott Turner and our team do a great job for our taxpayers."

"Yellowstone County has been in a strong financial position for a fairly long time," commented Turner, who attributes the county’s rating just as much to the county’s "policies, procedures and planning."

The very fact that the county is jumping on the opportunity for lower interest rates, and is doing so for the second time to save money for taxpayers, is indicative of the frugality of county administrators. Ekstrom said that not all governmental entities are as willing to take on the extra work of refinancing. The savings will go directly to a lower levy, for taxpayers, to pay off what was originally a $9.85 million
loan initiated in 1994 for a major renovation of MetraPark. There remains but five years to the financing, and for the new bonds to which the county will commit on Thursday.Ekstrom said that she expects the interest rates to come in at about 2 percent – and may be lower.

The county is currently paying 3.8 percent, which is still a lower rate than that of the original financing at 5.8 percent. The county first refinanced the loan in 2001, the last time that the county’s credit worthiness was assessed.

But it’s the fact that Yellowstone County doesn’t like to borrow money very much that contributes to its solid standing, according to Ekstrom. For a county of its size, Yellowstone has very low debt. The county has a debt capacity of $197.5 million as set by state law, but holds debt of only a little over $7 million. Even the fact that Billings’ schools have no debt, which is a factor in the consideration,
"is rare," said Ekstrom."There’s a lot to be proud of," said Ekstrom, "It is really rare to see so little debt."

Rating services also look at a government’s investment policies and whether they are doing "good capital planning," explained Turner. "They want to make sure that the county’s buildings and facilities aren’t deteriorating and everything is in good operating condition." They look at audit reports and at the over-all economy of the community.

The comparably better condition of the state’s economy resulted in an upgrade in rating for Montana state government from AA- to AA last spring. Gallatin County also recently experienced an upgrade countervailing to national trends, according to Ekstrom.

Getting the analysts to focus on the differences that exists in Montana, compared to other states, was a bit of a challenge, said Ekstrom. Concern about the escalating risk of local governments prompted the recent announcement by Moody, another highly recognized rating firm, that they were downgrading municipalities
across the country in a blanket fashion, which they have never done before. There was a need to overcome their "bias toward not giving upgrades," said Ekstrom.

Interestingly, one of the reasons Montana’s local governmental entities are looking so much better than most local governments in the nation, is that they aren’t reliant on a sales tax. The economic downturn directly and immediately impacts revenues from sales taxes, which is leaving governments, which are dependent
upon it, facing cutbacks, and prompting concern among investors. In Montana local governments get most of their revenues from property taxes, which is a more stable and consistent source of revenue during economic upheaval, making them more resilient, resulting in stronger credit ratings.
 
hat the State of Montana is more dependent on income tax revenues more so than property taxes, is one the of reasons it has a lower rating than Yellowstone County, said Ekstrom. Like the sales tax, income taxes are more vulnerable to fluctuating economic conditions.

In saying that Yellowstone County has achieved the highest practical bond rating, Ekstrom noted that there is a AAA bond rating that is rarely issued, so rarely that it isn’t really a credible possibility – especially for governments since quite often their internal economic structure makes it impossible for them to qualify.