YAKIMA, Wash. -- The city of Yakima's bond rating was recently downgraded due to what experts say is a weaker economy and less financial flexibility. But city officials aren't too concerned.
A city's bond rating, much like a private person's credit rating, determines creditworthiness and interest rates when borrowing money.
Last month, the city's rating fell one step, from AA- to A+, according to Standard and Poor's Global Ratings. The financial institution rates cities' finances.
When firm representatives looked at the city, they said residents' incomes have been declining and that at the current level the city's reserve, or rainy day, fund can't do much to provide flexibility for the city should incomes and taxes fall further, said firm primary analyst Sarah Sullivan.
"It's not to say we couldn't see the city's ratings going up," she said. "I think the city had a good story to tell when it comes to the mill site and efforts to diversify income."
But as long as the city remains so reliant on agricultural activity, it will be challenging to increase incomes and stimulate economic development.
City Manager Cliff Moore said this can almost be expected because of the unstable nature of an agricultural economy like Yakima's. But increasing tax revenues show signs of a modest economic upswing, he said.
Additionally, he said this report was issued before the 2016 budget was officially closed. Under the finalized budget, the city isn't expected to need to take any money from its reserve fund and will have $600,000 more in it by the end of the year than originally expected.
"Tax revenues are modestly increasing, and that's a good sign," Moore said. "We're also doing really well in managing our expenditures and being super cautious. So this is a little bit disappointing, but it's nothing we can't overcome."
In the future, he said, he expects to see the City Council weigh future expenditures with the knowledge that the bond rating can actually be affected, instead of a warning that no one knows if or when it will come through.
"This may actually help us frame the argument in the future that we have to be cautious with our money," he said.
While the bond rating is one factor used to determine interest rates when the city borrows money, it's nearly impossible to determine if and how much interest rates could vary when the city goes to borrow money next time, said city spokesman Randy Beehler.
"So many factors are included to determine the interest rate," he said. "Even when we were issued a bond with the (better) bond rating, we still paid an interest rate that was higher than a bond that we had issued a few years earlier at the (worse) bond rating."
Either way, Moore said the city's finances will be reviewed again in two years or when they go out to borrow money -- whichever comes first. With an increased reserve fund and movement toward greater economic development in the city, he said he's optimistic the rating can be improved.