Contact: Thea Setterbo, 210-207-7349
SAN ANTONIO (Dec. 19, 2018) – After nine consecutive years of ‘AAA’ bond ratings from the three major ratings agencies, one of those agencies, Fitch, has downgraded its bond rating of the City of San Antonio. Fitch downgraded the City one notch from a ‘AAA’ to a ‘AA+.’ The downgrade is a direct result of the passage of Propositions B and C, which were submitted by the fire union and amended the City’s Charter during the most recent November election.
“We are disappointed in the downgrade, but unfortunately not surprised,” City Manager Sheryl Sculley said. “The ratings agencies told us earlier this year that, if passed, the propositions on the November ballot could severely limit our financial flexibility and operation of the City organization. While the City’s financial position is stronger today than in our annual review last summer, this downgrade is directly related to propositions B and C.”
City Manager Sculley and Chief Financial Officer Ben Gorzell met with Fitch, Moody’s Investor Services (Moody’s) and Standard & Poor’s (S&P) earlier this month in anticipation of the City’s sale of General Improvement Refunding Bonds in 2019. These bonds, approximately $24.5 million, are being issued to refund the City’s existing HUD 108 Loan for debt service and interest cost savings.
“The downgrade of the Issuer Default Rating (IDR) to 'AA+' from 'AAA' IDR and one-notch downgrade of other city debt reflects the city's diminished expenditure flexibility triggered by a voter-approved city charter amendment that permits firefighters to call for binding arbitration during future collective bargaining agreement (CBA) negotiations that result in an impasse,” the Fitch Ratings report states. “Firefighters and police comprise the city's largest expenditures, which have been expanding rapidly due to costly benefits. The city may opt to remain in the current firefighter CBA through 2024, during which time salaries remain flat, but Fitch believes longer-term workforce controls are materially weaker under a binding arbitration framework.”
The City’s current outstanding debt under these structures is fixed and will not be impacted by the downgrade. However, as the City issues future debt under these bond structures, including issuances for the 2017 bond program, the City’s costs would be impacted by the downgrade. The downgrade will also impact the City’s outstanding debt trading on the secondary market.
While Moody’s and S&P reaffirmed their ‘AAA’ bond rating of the City, the uncertainty associated with Propositions B and C continues to place pressure on the City’s ratings. The ratings agencies will continue to monitor and assess the impact of the propositions upon the City.
A copy of each of the ratings agency reports is available on the City’s website: https://www.sanantonio.gov/Finance/bfi/officialstatements.