EL PASO, TX – El Paso, Texas received an upgrade of the city’s bond rating from AA to AA+, the second highest rating that can be awarded by an issuer.
“This is incredible and historic news for our community, reflecting tremendous recognition of the work we have done over the past nine years. Almost nine years ago, we inherited 21 external audit results and had only nine days of operating fund balance. Today, we have gone seven years in a row without any audit results and have 91 days of fund balance,” said Tommy Gonzalez, city manager.
Gonzalez indicated that the improved rating was important to taxpayers because it can potentially save millions of dollars in interest over the life of the debt that is issued or refinanced.
“In many ways, bond ratings can be compared to personal credit scores. If you have an excellent credit score, you can get lower interest rates and refinance your home to reduce your debt more quickly. Likewise, a strong City bond rating will help El Paso save millions of dollars for our community, and we can reduce the City’s debt,” said Gonzalez.
The upgrade was provided by Kroll Bond Rating Agency, LLC (KBRA). Some of the factors that influenced the positive outlook upgrade include conservative budgeting practices that have supported increased financial flexibility since 2014; an improved fund balance that increased by $118 million-from 9 days of fund balance to 91 days.
In addition, solid progress in funding pensions and modest Other Post-Employment Benefits (OPEB) obligations was highlighted; as well as a thorough budgeting process, active financial monitoring on a monthly basis, a clearly defined reserve policy, and multi-year budgeting for operating and capital purposes.
The City noted that other factors included moderate debt metrics balanced by very solid progress in pension and OPEB funding; steady revenue growth and conservative budgeting practices have produced a trend of growth in the general fund balance each year since 2014; and economic strength through the post-pandemic recovery, along with pandemic-related federal assistance that have helped to further boost reserves.
“To receive an upgrade in our bond rating, which has not occurred since the 1990s, an organization must have an exemplary management system, including continuous improvement in product and service delivery, efficient and effective operations, and responsiveness to customers and employees,” Gonzalez said.
According to KBRA, El Paso’s tax base, strong budget, and financial management practices, historically well-balanced operations, and very manageable long-term liabilities were what led to the rating upgrade.