In light of the local municipal credit market in California, Moody’s ended last year by reviewing 32 agencies through out the state. Among those who performed best were 8 cities granted Moody’s highest rating, including the City of Sunnyvale.
Citing Sunnyvale’s “very sound long term fiscal policies” and “exceptionally strong reserves,” Moody’s granted a Aaa issuer credit rating to the city.
“This is a prize certainly,” said City Manager Gary Luebbers in a statement issued on Wednesday. “But far more important to me is what it stands for in terms of Sunnyvale’s ongoing commitment to strong financial decision-making and good governance in general.”
Sunnyvale currently has over $88 million, or equivalent to more than 70% of its annual general fund revenue, in reserve. The report also made special note that the City is making substantial contributions toward its pension and retiree benefit expenses. For example, Sunnyvale established a trust with $10 million from its reserves to pay for future retiree healthcare costs, and is contributing 19% more than the PERS Annual Required Contribution for its pension costs specifically to minimize the City’s future liability.
The good news for Sunnyvale was shared by seven other cities: Beverly Hills, Santa Monica, Menlo Park, Newport Beach, Palo Alto, Manhattan Beach, and Saratoga. However others have not been as lucky in recent months.
Fresno recently received news of their credit rating downgrade from Moody’s and a negative outlook for all of their debts. The Fresno issuer rating of A3 was confirmed, but that is seven grades lower than Sunnyvale’s Aaa.
“Officials from Moody’s advised [the City of Fresno] that while they appreciate our fiscal sustainability plan, they are nonetheless concerned that it relies so heavily on ‘political will’ to make it happen,” said Fresno City Manager Mark Scott after the new ratings were announced. “And, on the other hand, they worry about our capacity to cut services to the public further.”
Moody’s initiated its review because of concerns over municipal bankruptcies and bond defaults compounded by the economic recession and limitations California cities have on their ability to raise taxes. Though Sunnyvale is in very good financial condition, the agency was looking comprehensively across the state to reassess investment risk and credit-worthiness.
Sunnyvale “continues to be a desirable commercial area of Silicon Valley” and is benefiting from the region’s robust acceleration from the recession. With companies like Lockheed, Yahoo and Apple as Sunnyvale’s top three largest employers, the report credited the City’s strong employer base in the technology sector with helping to boost developer fee revenue and keep the City’s unemployment rate well below state and national averages at 7.8%. Based on the fact that the City’s economy is exiting the recession at a faster rate than most portions of the country, the agency projected the City’s “already very large $25 billion tax base will continue to grow in the short to mid-term.”