DALLAS — Standard & Poor’s yesterday upgraded San Antonio one notch to AAA based on strong financial performance amid an uncertain economy.
After 10 years at AA-plus, San Antonio joins Austin as the second major Texas city with the top credit rating. The agency has Houston and El Paso at AA and Dallas at AA-plus.
Despite steady growth to become the second largest city in the state and the seventh largest in the nation, San Antonio has suffered setbacks in the loss of its AT&T headquarters to Dallas and slowing truck sales that have reduced demand for full-size Tundra pickups at the new Toyota plant.
But expansion of military bases under the latest Base Realignment and Closure process has added 5,000 jobs and $2.1 billion in federal investment. And the city’s ability to diversify its employment base beyond the military was a significant factor in the upgrade, said analyst Horacio Aldrete-Sanchez.
“It’s a process that has taken place over the past five years, where the city has diversified beyond the military, particularly with Toyota and the medical services,” he said.
At the same time, the city expects a year-end fiscal 2008 unreserved general fund balance of roughly $154.5 million, which includes an undesignated general fund balance of $86.3 million, and emergency budget financial reserves of $68.2 million, Aldrete-Sanchez noted.
With the city preparing to issue $10.2 million of taxable general improvement refunding bonds next week, Fitch Ratings affirmed its AA-plus, which also applies to $726.8 million of outstanding general improvement bonds and $294.2 million of certificates of obligation.
“Renewed growth in the city’s sales tax receipts has enabled the city’s financial position to stabilize after experiencing some pressure during the last national recession, although economic conditions have reduced current sales tax receipts to more modest levels of growth,” wrote Fitch analyst Jose Acosta.
Moody’s Investors Service had not issued its report on the deal as of yesterday afternoon.
Next week’s deal will refund all outstanding parking system revenue bonds issued in 2000 for the construction of a large parking garage as part of a planned convention center hotel headquarters. Due to a change in plans, the parking garage was built by the hotel developer without assistance from the 2000 bonds. Because the parking system will continue to support the debt service on the refunded bonds, city officials do not anticipate any tax rate impact.
San Antonio last year issued the first installment of a $550 million authorization approved by voters in May 2007, the largest in the city’s history. The city is proposing to seek voter authorization for similar-sized programs every five years. All future debt will be sized to maintain the city’s current debt service tax rate assuming modest tax base growth, officials say.
“The impact of the proposed debt plans on the city’s direct debt profile should be manageable given its low current levels, rapid pay out rate, and expansive and growing tax base,” Acosta wrote.
