Iola’s bond rating gets upgrade

Iola’s bond rating, affecting the city’s ability to borrow money, has been upgraded by Standard & Poor’s.
In a letter dated Sept. 9, and released to the media Monday, City Administrator Carl Slaugh said Iola’s general obligation bond rating has been bumped up to an “A” from “BBB+” — two full notches.
The ratings are used in part to determine a municipality’s budget strength and ability to pay off debt using general obligation bonds. The better the rating, the lower the interest rate.
Standard and Poor’s gave Iola the “BBB” rating in 2011, then upgraded it a year later to “BBB+.”
The improved rating was unique, Slaugh noted, because S&P cited the city’s budget use of utility reserves to supplement its general fund as a strength. In its original bond rating two years ago — used when the city refinanced loans used to construct its water treatment plant — S&P considered such a practice a weakness.
The difference in opinion came about after the city consulted with S&P officials after the original rating was issued. Using the utility reserves has helped prevent increases in the city’s ad valorem tax levy.
While S&P considers Iola’s economy “very weak,” it viewed the city’s budgetary performance as “strong overall” with “very strong liquidity.”
The local economy is not unique to Iola, Slaugh noted.
The city’s per capita market value is about $42,400, according to S&P, with buying income at 71 percent of the national average. The city’s declining population is considered a credit weakness.
Iola’s management conditions are “adequate, with ‘standard’ financial practices,” S&P wrote. The city kept 8.3 percent of its overall operating expenditures in reserve last year, well within its goal of between 5 percent and 15 percent.
The city’s budgetary performance is “strong overall” with a surplus of 3.4 percent for the general fund of 11.4 percent for total governmental funds in 2013.
The overall liquidity provides total government available cash at 128 percent of its total fund expenditures.
Likewise, the city’s debt and contingent liabilities profile is very strong. The city is expected to pay off 79 percent  of its debt over 10 years.
“The stable outlook reflects our view of Iola’s strong budgetary performance and very strong liquidity,” S&P wrote. “The city’s very weak economy will remain a constraining factor over the medium term.”
The agency does not anticipate raising the rating over the next two years.