CHICAGO – Indianapolis received a first time general obligation rating of AA-plus from Kroll Bond Rating Agency.
The rating agency attached a stable outlook to its new rating, which is one notch lower than the city’s triple-A marks from Fitch Ratings and Moody’s Investors Service.
“KBRA views the financial position of the city of Indianapolis as strong based on the history of unassigned fund balances in the general fund at levels above 11% of expenditures since 2011,” analysts wrote in the report published Oct. 13.
The rating also recognizes the city’s investment in its downtown and neighborhood economic development and it’s low debt per capita levels of $1,493 and 3.5% of full market value.
In 2014, direct debt service represented a low 4.2% of expenditures while retirement contributions for pensions and other post-employment benefits accounted for a low 4.7% of expenses, Kroll said. The city’s liquidity is considered strong as it provides cash flow support that allows the city to forgo borrowing.
Kroll analysts described the city’s lack of a formally adopted requirement on the maintenance or replenishment of its fiscal stability fund or a formal capital program as key credit concerns. The rating agency also it had concerns over a drawdown of the fiscal stability fund in fiscal 2014 to cover operating costs.
The state capital, which has a population of 829,841, has established $80 million as a target for the fund and aims to replenish the drawdown in the next fiscal year’s budget.
The city is in the process of developing its first formal multiyear financial plan and debt management plan, Kroll noted.
The city has increased its capital funding through its Rebuild Indy program, which is funded from a dedicated reserve. The reserve was established in 2011 from the proceeds of the sale of its water and wastewater system.
Total direct and overlapping debt for the consolidated city/ Marion County government totals $1.3 billion. The city hasn’t issued GOs since 2008 when Mayor Greg Ballard took office; since then the city has chipped away at the total. The portfolio is all fixed-rate, which Kroll said it views positively. Indianapolis has $160 million of GO bonds and another $900 million of debt backed by the city's moral obligation pledge.
Standard & Poor’s rates Indianapolis AA after downgrading its AAA rating in 2013.
Indianapolis earlier this year moved to revamp its disclosure with a new website and annual report that provide detailed overviews of the city's debt and borrowing practices.
The website is officially the site of Indianapolis Local Public Improvement Bond Bank, the city's borrowing arm.
The bond bank is also releasing details of the city's tax increment financing districts, including a large downtown district that is linked to many of the city's bonds and has sparked controversy over the last few years.