Stockton, California, officials are touting a rating credit upgrade as another sign of progress since the city emerged from bankruptcy more than three years ago.
S&P Global Ratings moved the rating on the Northern California city’s lease revenue bonds issued through the Stockton Public Financing Authority four notches to BB from B-minus on Aug. 17. The rating agency assigned a positive outlook to the new rating, which remains speculative grade.
“What we’re seeing is a pretty good record of discipline in terms of spending and having a long-term view,” S&P analyst Chris Morgan said in an interview Tuesday. “We’re increasingly confident they’re going to continue to meet their obligations.”
Over the last three budget cycles, the city has adopted a 20-year plan and built up its reserves, he said.
Stockton
Matt Paulin, Stockton’s chief financial officer, described a four-notch upgrade as unusual and a reflection of the city’s fiscal discipline and improvement.
“It’s really an affirmation of the things we’ve instituted here at the city so we can maintain fiscal sustainability,” he said.
The $9.4 million of lease revenue bonds, backed by the city’s general fund, were originally issued 1999 to finance a police administration building and were refunded in 2006.
The last upgrade to city general fund bonds was in November 2014 when multiple issues were upgraded from CCC to B-minus. In December 2016, S&P moved city sewer bonds from A-minus to A with an outlook of stable.
Stockton still faces some challenges to return to investment grade status. Despite some growth, the city economy is weak and it continues to carry a large pension obligation, according to the S&P report.
“How they handle the next recession is the big question,” Morgan said.
Paulin agreed that the city still has challenges and is not yet where it needs to be but he believes the policies it has enacted will get it there.
“I think if we continue to sustain what we’re doing, I’m pretty confident we’ll get to that investment grade next time around,” he said.
Since bankruptcy, Stockton has only issued two refundings, Paulin said. A $150 million sewer plant renovation could spur the city’s first new money bond issue post-bankruptcy next spring. However, city officials are first exploring the availability of state and federal dollars before looking to a bond issuance, Paulin said.
