NORTH ROYALTON – Moody’s Investor Services has once again reaffirmed the city’s strong Aa2 bond rating, noting a solid tax base, healthy financial position and small debt burden.
Moody’s ranks commercial and governmental entities using a standardized rating scale designed to demonstrate the entity’s, or borrowers’, credit worthiness to potential investors. Ratings span from Ba1 to Aaa.
A city’s bond rating directly impacts the interest rate at which it can sell bonds. The higher the bond rating, the better interest rates a city can secure because it is viewed as less of a risk in terms of debt repayment.
Here’s what Moody’s had to say about the city in a recent report: “North Royalton has a very high quality credit position, and its Aa2 rating is slightly above the median rating of Aa3 for cities nationwide. The notable credit factors include a strong socioeconomic profile with a solid tax base and a healthy financial position.”
Royalton also has, “a small debt burden.”
An elevated pension liability was one of the only dings on the report.
It’s out of the municipality’s control and something other Ohio communities face, Finance Director Eric Dean explained.
“Ohio’s pension for public employees has recently been added as a risk factor for all cities even though Ohio’s structure would make it unlikely for cities to be liable for unfunded pensions for their employees. We are being compared to other places like Chicago, Houston other places with under-funded pensions,” he said.
The report goes on to state both the economy and tax base are “very strong.” North Royalton’s total full value – the market value of all the residential, commercial, industrial of North Royalton combined – is $2.4 billion, slightly above the nation’s median. The full value per capita, $78,242, is on par with other Moody’s-rated communities across the country and “grew modestly” from 2012 to 2015.
The U.S. median family income is 115.2 percent. Royalton’s grew from 128.6 percent in 2012 to a “strong” 136 in 2014 and 2015.
In the area of finances, the report described the city’s financial position as “healthy.”
The available fund balance as a percent of operating revenues is slightly lower than the U.S. median of 32.1 percent and “fell modestly” between 2012 and 2015 from 25.7 to 23.4 percent.
Royalton could have a higher cash balance; however, it chooses to earmark money in various funds to prepare for the unforeseen and known future needs, Dean said.
“We are aggressively improving needed items that could instead boost our balance. We reserve money for capital items such as building repairs, equipment, retirements, money we could use to increase our cash balance. We could have a higher balance, but I feel we are good where we are,” he said.
As for debts, Royalton has a small debt burden relative to the assigned Aa2 rating, and when it comes to management and governance, Moody’s wrote that North Royalton’s “balanced financial operations demonstrate good financial management. On average, North Royalton’s operations were stable as the tax base grew modestly.”
Overall, Dean described the report as reassuring.
“I think this is the most important overview of the city. It’s the actual reflection of the credit rating. We have some positive things in here. That we are doing good according to Moody’s is reassuring,” he said.
Mayor Bob Stefanik said a few things stuck out to him.
“The biggest thing I took away from the report was our small debt burden relative to other cities with the Aa2 rating,” he said. “It means we have borrowed less money and in turn have to pay back less money than comparable cities with an Aa2 rating. The rule of thumb is it’s always better to pay cash when possible, rather than taking out a loan.”
Council President Larry Antoskiewicz, chair of the finance committee, said the city’s financial strength stands out to him.
“Financially, the city is in a strong position, and that’s good news for everybody. It shows we are continuing to monitor and be very prudent with the budget,” he said. “We have a small debt burden and are able to keep reserves in a solid position. We’ve been able to get a lot of things done but keep the debt burden at a minimum.”