The City of Allentown receives an upgrade in its issuer rating and general obligation debt ratings from A3 to A2 by Moody’s Ratings, citing solid financial management, growing economy, and tax revenues.
The City of Allentown received an upgrade to its issuer rating and general obligation debt ratings from A3 to A2 from Moody’s Ratings.
In this most recent report for the rationale behind the City’s rating upgrade, Moody’s notes that the A2 rating is based on the City’s solid financial position, good budget management and growing economy and tax revenues, including its fund balance of 31.3% of revenue.
“The upgrade to A2 recognizes a much-improved financial position that the city will likely be able to maintain because of solid fiscal management and conscientious long-term financial planning,” shared the bond rating agency. “Economic growth has driven tax revenues significantly higher, which combined with expenditure controls and a property tax increase in 2019 helped the city to achieve structural balance following a long history of budget gimmickry.”
Moody’s noted that the ratings reflect key weaknesses and credit challenges: the City’s high poverty, low-income economic base, a large pension liability, and political obstacles to increasing taxes.
“Although Allentown may face political obstacles to increasing revenues if necessary to balance future budgets, sharp financial management will preserve a more solid financial position going forward,” Moody’s said.
The bond rating agency also removed the stable outlook as Moody's does not maintain outlooks for local governments with this amount of debt outstanding. Allentown has approximately $109 million of debt outstanding as of 2022 – all of which are general obligations to which the city has pledged its full faith and credit.
The City’s general obligation bonds are rated by both Moody’s and S&P. 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.
Allentown most recently received a rating upgrade from the S&P in October 2022 from A negative to A stable. The historical context of that 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 as a result of 12 years without any tax increases.
As a result of the Moody’s Ratings upgrade, the Administration estimates that this would save the City 10 basis points (0.10%) on a hypothetical borrowing. For a $30 million borrowing, the City could save over $300,000.