Indianapolis’ ad valorem tax-secured bonds won a one-notch upgrade to AA-plus from S&P Global Ratings in recognition of fiscal and economic gains that better position the city to tackle looming strains.
"The upgrade reflects the economic and financial progress Indianapolis has achieved in recent years, as well as improved managerial practices," said S&P analyst Anna Uboytseva. "Economically, the city continues to advance and diversify at a faster rate than many other Midwestern counterparts.”
The outlook is stable.
The city’s balance sheet is benefiting from tax base growth and city management remains committed to budgetary balance “while positioning itself well to address identified challenges of high public safety costs and aging infrastructure,” S&P added.
The bond rating also benefits from its favorable position on pension and other postemployment benefit obligations relative to its peers which adds to the city’s flexibility to address other budget pressures. The city enjoys strong liquidity with total available cash at 28.1% of expenses and 1.7 times coverage of debt service.
A “high debt burden remains a credit negative, however, and with significant additional debt plans, could cause increasing pressure,” S&P said. Debt service carrying charges represent 16.2% of expenditures and net direct debt is 135.9% of total governmental fund revenue.
“We could lower the rating if existing and new challenges prove more problematic than we anticipate and the city's budgetary performance worsens as a result,” S&P said.
The ad valorem property tax pledge is subject to the state’s circuit-breaker legislation that caps the property tax burden for taxpayers based on a percent of a real estate parcels' gross assessed value. The levy to cover debt service, however, is statutorily protected, allowing the city to distribute circuit-breaker losses first across non-debt service funds that receive property taxes. The debt is rated the same level as the city's general creditworthiness, S&P said.
