While leaders in Washington are scrambling to vote on a debt ceiling deal that would head off a default on the nation’s debt, the city of Mason’s bond rating remains steady.
Moody’s Investors Service, which gave the city its highest bond rating of Aaa in May, has notified city officials that Mason will not be included in its pending review of local governments as the nation faces a downgrade of the federal debt rating.
The rating agency announced Thursday that 162 local governments across the country would have their bond ratings reviewed for a possible downgrade.
Mason has “healthy financial operations supported by sound reserves and a diverse income tax base, and a manageable debt burden with limited future borrowing expected, ” according to documents received by city officials from Moody’s.
The rating will help reduce the city’s overall debt service cost through lower rates, saving Mason around $250,000 a year, or up to $2.3 million in savings over the life of the debt, said Jennifer Trepal, Mason’s public information officer.
Trepal points to action taken by City Council on significant debt transactions to improve the city’s overall debt structure. In March, council authorized the city to:
- Refinance existing bonds and convert short-term notes into long-term bonds. This action secured a low 3 percent interest rate for an extended period and will save the city at least $260,000 over the next eight years. The bonds are for the U.S. 42 Widening Project, the Mason Road Widening Project, and Stormwater Improvement projects.
- Convert short-term notes for the golf course acquisition. The city locked in a 3 1/4 long-term rate for the next 12 years. The bonds retain the flexibility to allow the debt to be paid as early as 2016.
- Re-issue a 1-year bond anticipation note for city-owned property on State Route 741. The effective rate of less than 1 percent secured an historically low rate while maintaining needed flexibility. This property is targeted for eventual use as a business park and financing options must retain some flexibility to retain the attractiveness of the property to potential developers.
According to Trepal, the above actions and the city’s aggressive debt reduction strategy will decrease the city’s debt of $99.5 million by $4.2 million in 2011 and another $4.4 million in 2012.
Only 7 percent of the city’s outstanding debt is exposed to rising rates and refinancing risk, she said.
More than half of the outstanding debt is secured by revenue-generating operations such as utility fees and other non-tax sources. The remainder is paid through the city’s General Fund. Income taxes make up about 80 percent of the General Fund, according to Trepal.
“We are paying down our debt in a big way and we’ve got some excellent locked-in long term rates,” said Mason Mayor Don Prince.