November 16, 2022 – The City of Allentown received a revised rating outlook from A negative to A stable on its General Obligation bonds from S&P Global Ratings (S&P).

The bond rating agency report shared the following credit highlight: “The outlook revision reflects our view that the City has attained structural balance, despite pressures from the pandemic, as well as our view that stronger reserves will provide the City with sufficient cushion as the economy enters a potential recession in 2023.”

The City’s General Obligation bonds are rated by both S&P and Moody’s. Municipal bond rating agencies look at the underlying economy of the municipality, its debt structure, its financial outlook, and management practices to evaluate bond ratings.

In this most recent report for the City’s long-term financial outlook, S&P notes:

• Very strong General Fund surpluses of over 30%, and very strong reserves in the face of a looming national recession;
• Financial management upgraded from “standard” to “good;”
• Very strong liquidity;
• Significant economic growth regionally, with access to jobs in education, health care, government, transportation, and logistics.

S&P also addresses the City’s financial headwinds, which are:

• High contractual operating costs;
• Debt;
• Pension and OPEB (“Other Post-Employment Benefits”) costs;
• Risk cost escalation in its pension funds.

“This is a significant accomplishment in difficult economic times,” said Mayor Matt Tuerk. “When I took office, I was thrilled to join a high-quality financial management team. We stated a goal of improving the City’s bond rating and worked together to get it done.”

The historical context of Allentown’s bond rating shows that throughout the 1990’s, S&P rated the City’s bonds as AA. That outlook was substantially downgraded in 2005 to a BBB+ because of ongoing weakness in financial operations. In 2014, S&P upgraded the City’s bond rating to A+ due to the pension fund stability provided by the Water and Sewer Concession Lease to Lehigh County Authority. Then in 2018, S&P downgraded the City’s rating to A negative after several years of the City using cash reserves to meet operating expenses.

The Administration estimates that the revised outlook from S&P would save it 10 basis points (0.10%) on a hypothetical borrowing, or $10,000 of interest over the life of a $1,000,000 20-year bond issuance.

 

 
Information provided to TVL by:
Genesis Ortega
Communications Manager
Office of the Mayor
http://www.AllentownPA.gov

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