DALLAS - Increased economic activity and a growing population in New Orleans has prompted Standard & Poor's to increase its long-term and underlying rating on the city's general obligation debt to BBB from BB, and on its limited-tax GO debt to BBB-minus from BB-minus. The outlook is stable.
New Orleans has approximately $524 million of outstanding GO debt.
The upgrade reflects the city' active rebuilding efforts, its effort to restore structural balance to its budget, and the economic expansion generated through the efforts to restore the city from the devastation caused by Hurricane Katrina in August 2005, said Dallas-based credit analysts Sarah Smaardyk and Horacio Aldrete-Sanchez.
"The city's economy is recovering and as a result people are returning to New Orleans," Smaardyk said.
The change in ratings was the result of Standard & Poorthe agency's annual surveillance program for issuers and not a planned debt sale, she said.
The report said New Orleans' strengths include the Road Home program, which has disbursed almost $8 billion for residential rebuilding efforts in Louisiana, the return of major employers and taxpayers to the city, and the city's "conservative and sophisticated financial management policies."
Analysts said ongoing challenges include basic infrastructure rebuilding, lack of a structurally balanced budget, and adequate but below-national average wealth and income levels.
"Any further upgrade is contingent on the city's ability to restore and maintain sound financial operations while managing a significant rebuilding effort to restore city infrastructure to pre-storm conditions," Smaardyk said.
Fitch Ratings raised the city's tax-secured GO bonds to BBB from BBB-minus last week. Moody's Investors Service affirmed its Baa3 rating on the credit in March.
Smaardyk said the population in New Orleans has reached about 85% of pre-Katrina levels of about 455,000. The peak population of the city was 627,000 in 1960.
Before the 2005 hurricane, she said, the city hosted 10.1 million visitors a year, had more than 40,000 businesses, and generated about $3 billion a year in construction activity.
After the storm, she said, there were 134,000 damaged housing units, the city lost millions of dollars in tax revenues, and almost 50% of the population was out of work.
New Orleans' sales tax revenues for 2005 totaled $116 million, down 24% below collection in 2004, the last pre-Katrina full fiscal year. The city operates on a calendar fiscal year.
Sales tax collections in 2006 totaled $124 million, increasing steadily to $133 million in 2007 and $142 million in 2008.
Full property valuation in New Orleans is $19 billion, with $2.2 billion in assessed valuation.
