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Posted on January 20, 2009
The City of Tallahassee’s capital bond rating has been downgraded. Bonds are used by states and municipalities to raise money to pay for things such as infrastructure projects.
On January 16, 2009 Business Wire reported that “in the course of routine surveillance, Fitch Ratings downgraded Tallahassee, Florida’s approximately $5.2 million in outstanding capital bonds series 2001 and $78.0 million in capital bonds series 2004 to ‘AA-‘ from ‘AA’. The Rating Outlook has been revised to Negative from Stable”.
The report stated “The downgrade to ‘AA-‘ is based on the deterioration of the city’s financial profile including multiple years of operating deficits and declining fund balance levels. Also incorporated into the rating are the sound debt service coverage on the capital bonds, stable economy, and low debt levels.”
Tallahassee Reports contacted the City of Tallahassee’s Treasurer, Gary Herndon, to seek information on the downgrade. Mr Herndon stated that the City had a very,very good rating before the downgrade and now has a very good rating. He said the implications of the downgrade could possibly be seen in slightly higher borrowing costs. Mr. Herndon said the City had no immediate plans to initiate any borrowing.
The report indicated that Tallahassee’s general fund operated with deficits in nine out of the last 10 years. These deficits have partially been driven by the needs of the fire services fund. As a result of an unfavorable contract, the city has been providing fire services to the county while receiving annual payments which, according to the city, are below the cost of service.
While Mr. Herndon said that the issue with fire services contract was currently being addressed, the report indicated that even without the fire services issue, ” the city still would have experienced fund balance drawdowns in four out of the last five years.”
See Fitch rating report here.