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<br />rei -\.) <br />( ); <br />rill <br /> <br />. <br /> <br />. <br /> <br />MEMORANDUM <br /> <br /> <br />TO: <br /> <br />Mayor & City Council <br /> <br />,,~ <br /> <br />River <br /> <br />FROM: <br /> <br />Lori Johnson, Finance Director <br /> <br />DATE: <br /> <br />June 28, 1998 <br /> <br />SUBJECT: Bond Rating Upgrade <br /> <br />I am very pleased to inform you that the City's bond rating has been upgraded by <br />Moody's Investors Service from Baal to A3. Unfortunately, this information was <br />not received until after the packets had been delivered, but I wanted you to have an <br />opportunity to review the information before the meeting so you would be prepared <br />to comment on the rating or ask Dave MacGilliveray any questions you may have <br />regarding the rating. There are several factors which influenced Moody's decision to <br />upgrade the City's bond rating some of which are highlighted in the attached credit <br />report from Moody's. However, there are a few additional comments I wanted to <br />pass on to you. <br /> <br />In my phone conference with Jennifer Davis on Thursday regarding this issue, all <br />aspects of the City's financial condition, current and future, were discussed at <br />length in addition to discussing growth and future infrastructure improvements <br />required to accommodate growth expectations. There were several issues which <br />required more explanation than others including the fund balance in the General <br />Fund. She was concerned that the fund balance did not increase in 1998 and <br />wanted to know if this trend was expected to continue. I discussed the Council's <br />policy decision regarding the 1998 fund balance. I further explained that this <br />action only applied to the 1998 fund balance and indicated that it is anticipated <br />that the fund balance will increase in future years based on conservative budgeting <br />practices and past Council philosophy of maintaining a fund balance which meets <br />cash flow needs and accommodates unexpected expenditures and revenue cuts or <br />shortfalls. Another area of discussion related to future school debt. <br /> <br />Obviously, there were enough positive indicators about the City to cause Moody's to <br />increase the bond rating. For instance, new demographic statistics were provided <br />indicating that the median income of the city's residents is above the state average <br />thereby eliminating past concerns about income levels and the ability to pay taxes. <br />Further, the rapid growth in higher valued residential property, which was <br />discussed on our tour and during the telephone conference, is a strong indicator of <br />the income levels of residents and more importantly, provides growth in the tax <br />base. Second, additional information regarding debt service reserves and debt <br />levels was provided demonstrating how special assessment prepayments have <br />allowed several bond issues to be called early or defeased. This is an important <br />factor when reviewing debt levels. Finally, the fact that the City has been able to <br />comfortably operate under the levy limit constraints was positive and indicates <br />sound budgeting and fiscal management practices. <br /> <br />13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420. Fax: (612) 441-7425 <br />