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City loses top bond rating from Standard & Poor's

December 20, 2013

Indianapolis had its bond rating cut from AAA to AA this week by financial rating service Standard & Poor's after the city dipped into reserve funds to balance its budget.

The ratings agency said it lowered the rating because of criteria changes, not because of any change in the city's financial condition. AAA is the top rating a city can achieve.

S&P said the city’s outlook is stable, reflecting the city's “very strong budget flexibility and liquidity, along with its strong management."

Two other major ratings services, Fitch and Moody’s Investor Service, retained their AAA ratings for the city.

“This was not an unexpected move given that Standard and Poor’s new ratings model resulted in adjusted ratings for cities such as Omaha, St. Louis and Des Moines, Iowa, and likely other cities in the near future,” Indianapolis Mayor Greg Ballard said in a prepared statement. “Since Indy retains its AAA ratings from the other two major rating agencies, we don’t anticipate this one decision to materially increase the city’s borrowing costs.”

Ballard, a Republican, said he tried to avoid tapping reserve funds to balance the budget, but his plan to eliminate a property-tax homestead credit to raise money was shot down by majority Democrats on the City-County Council.

Instead, the city took $15 million from reserve funds, including a $6.9 million loan from a fiscal stability fund, $5.7 million from a water-and-sewer escrow fund, and $2.4 million from a rainy-day fund.

“Each of the last two years, I have asked the City-County Council to take the necessary steps to provide adequate funding for police operations, but the council refused and relied on one-time funds for ongoing operations,” Ballard said. “That decision played heavily on S&P’s ratings decision.”

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