Agency boosts city of El Paso's bond rating to AA+ for first increase in 30 years

City leaders are taking a victory lap following an announcement that Kroll Bond Rating Agency, a global agency, had increased El Paso's rating to AA+.

That is the second-highest rating a city can earn and the first increase for the city of El Paso in nearly 30 years.

“This is incredible, historic news for our community and speaks to the tremendous recognition of the work accomplished over the last nine years," City Manager Tommy Gonzalez said in a news release. "This is very important for our taxpayers because we can potentially save millions of dollars in interest over the life of debt we issue or refinance."

Gonzalez said a city's bond rating is comparable to an individual's credit score ‒ a better score allows a person to borrow more, while a lower score can often create a significant roadblock to a would-be borrower.

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"If you have an excellent credit score, you can get lower interest rates and refinance your home to lower your debt faster," Gonzalez said in the release. "Similarly, a strong bond rating for the city will help the city save millions of dollars for our community and we can reduce the city’s debt.”

South-West city Rep. Chris Canales used a similar analogy.

"The city's bond rating is something like a person's credit score, and the city's is very strong," Canales said in a text. "The better the rating is, the less we have to pay in interest costs moving forward. Bond rating upgrades like this one save the taxpayer a lot of money, particularly on capital projects."

What caused the boost in the city's bond rating?

The new bond rating reflects years of work on behalf of Gonzalez and the El Paso City Council. When Gonzalez took his post as city manager in 2014, the city was facing 21 external audit findings and a nine-day operating balance ‒ since then, the city has seen seven years with no audit findings and currently maintains a 91-day operating balance.

"I think those two things really contributed to (the higher rating)," Gonzalez said. "There has been a lot of neglect over the years with (work) not getting done ... and now we're doing those things."

For Chief Financial Officer Robert Cortinas, much of the praise for the boost in the city's bond rating, which he said he has been pushing for over the past few years, is due to the "strong leadership under Mr. Gonzalez."

"It's been because of that really strong financial position over the last few years ... all of these results over the last nine years," Cortinas said. "This was just the cherry on top that really validates all the accomplishments we've made over the last nine years under Mr. Gonzalez."

According to KBRA's assessment, the higher rating was assigned because of the following key credit considerations:

• Conservative budget practices that have supported increasing financial flexibility since 2014.

• Total unassigned and committed general fund balances at 28% of expenditures as of financial year end 2022 provide a large operating cushion.

• Strong pension funding progress and modest Other Postemployment Benefits obligations moderate fixed costs.

• A comprehensive budget process, active financial monitoring, a clearly defined reserve policy, and multiyear budgeting for operating and capital purposes.

• Moderate debt metrics balanced by very strong pension and Other Postemployment Benefits funding progress.

• Consistent revenue growth and conservative budget practices that have produced a trend of growing general fund balance each year since 2014.

• Economic strength through the post-pandemic recovery, coupled with pandemic-related federal assistance, that helped to further boost reserves.

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Additionally, the report cited the city's "growing tax base, strong budgeting and financial management practices, historically well-balanced operations and very manageable long-term liabilities" as lending to the increase.

Much of that has been achieved due to the creation of stabilization funds to increase reserves and prepare for long-term sustainability, annual set-aside funding for top priorities, refinancing old debt to the tune of $68 million in savings and the forthcoming "Pay-for-Futures Fund," which Gonzalez has said will be presented to the council soon.

But the El Paso City Council has played no small part in bringing these financial changes to fruition. Gonzalez praised the council for consistently supporting the efforts he and his team were making to shore up the city's accounts.

Likewise, East-Central city Rep. Cassandra Hernandez touted the council's role in the latest rating change.

"I have been championing efforts to directly address the concerns from bond rates, such as developing a pension stabilization fund and increasing our rainy-day fund," Hernandez said in a text message. "Through the experience of our city management and the persistence from past city councils, together we have achieved millions of dollars of savings for taxpayers at a time of economic uncertainty.

What does the upgrade mean for the future?

The increased bond rating is more than just a feather in the cap of city leaders.

Cortinas said it could result in real benefits to the city and taxpayers in the form of lower interest rates on outstanding city debt.

"Having a better bond rating potentially could result in anywhere from 15- to 20-basis points less on interest rates," Cortinas said, adding that the drop could result in up to $20 million cut off of remaining debt. "It's very, very exciting news ‒ with the investment we're seeing, what the voters have approved ... those capital projects now, as we go and issue debt, you're going to be able to lower the cost of those projects by getting a better rate."

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Gonzalez agreed.

"This will give us an opportunity to save more money when we issue that bond," Gonzalez said, adding that over the life of the ensuing debt, "we have a potential to save millions of dollars."

And those lowered interest rates will allow the city to invest in other priorities, Gonzalez said, such as continuing to boost pay for city workers and invest in city transit and infrastructure.

"It gives us the ability to do that and that's important in order to be competitive (and) to get the best and the brightest," Gonzalez said.

Aside from the boon to city coffers, Hernandez sees the increased bond rating as a significant milestone for the council and the city as a whole.

"I was very emotional when I learned the news of the bond rate increase," Hernandez said in the text message. "The work we have been doing to grow our bond ratings has been nothing short of the greatest accomplishment of my time in office."

"This bond rating increase positions the city to have favorable interest rates due to voter-approved bonds," she continued. "I congratulate El Pasoans on this historic achievement in our city government."

The remainder of the City Council either did not respond to a request for comment or could not be reached.

This article originally appeared on El Paso Times: El Paso's bond rating increased to AA+ for first boost in 30 years