Rock Hill’s bond rating cause to celebrate

dworthington@heraldonline.comJuly 1, 2013 

  • Bond debt

    The bond debt as of June 30 locally.

    Rock Hill, $17.1 million

    York County 57.6 million

    Rock Hill Schools 161.1 million

    Source: City of Rock Hill

— Municipal credit ratings seldom make headlines. The notable exception is when the rating agencies evaluate the credit worthiness of the United States, as Fitch did last week.

With high debt levels, the U.S. is vulnerable to shock unless it reduces the deficit, Fitch analysts said. The rating agency gave a AAA rating, the highest possible, but with a negative outlook. Moody Investors Service rates U.S. credit at Aaa with a negative outlook while Standard and Poor’s rating is AA+ with a stable outlook, one step down from the highest rating, but a recent upgrade from a negative outlook.

So, when the city of Rock Hill announced it had been re-rated in anticipation of selling more than $5 million of bonds for a new downtown parking garage, improvements to the law center and refinancing of outstanding debt, it hardly seemed cause to celebrate.

While the announcement isn’t cause to light fireworks, eat hot dogs and ice cream and parade like we will do later this week, it is time to celebrate.

Standard and Poor’s gave Rock Hill’s upcoming general obligation bonds a AA- rating, up from A+. Moody’s rates the city as Aa3. The ratings are similar to York County which holds a AA from Standard and Poor’s and an Aa2 from Moody’s for its general obligation bonds.

The bond ratings for projects supported by the hospitality tax, such as the parking garage and the BMX track at Riverwalk, is A+, up from A from Standard and Poor’s.

The jump in ratings means Rock Hill bonds are more attractive to investors and the city should get a lower interest rate when it sells the bonds.

That’s the kind of news that attracts the attention of investment advisers and govco watchers.

The rating is, in part, based on the financial practices of Rock Hill government.

But the rating also is based on the health of the economy and other factors outside government control. In many ways, the bond rating is a community report card, and Rock Hill is doing much better than the average.

Among the factors the city provided the rating agencies were:

• Retail sales in 2012 of more than $6 million with one-third of the sales in the city. During the recession years of 2009 and 2010 retail sales fell to about $4.5 million each year.

• A dramatic surge in city building permits in 2012 with a value of $298 million. In 2009 the value of permits was $78 million.

• A diverse tax base with the 10 largest taxpayers representing 7.5 percent of the city’ total assessed value. (Comporium is the largest individual property taxpayer at $526,991 while Tenet HealthCare and Piedmont Medical Center, combined, pay $498,966.)

Standard and Poor’s analysts said the bond rating reflects the rapid growth and commercial character of Rock Hill as an industrial and retail center.

Among the government factors reflected in the rating are a relatively flat tax rate and a commitment to put $200,000 in the budget to build the reserves to 15 percent of prior year expenditures. Standard and Poor’s analysts also said the city’s budget on-line dashboard provides residents a high degree of transparency.

Concerns over Rock Hill electric rates have been well documented and well founded. Rock Hill officials hope the rates, which has increased every year recently, will soon remain stable.

The analysts did note the city’s utility transfer policy. The policy treats the utility department as a business. The transfer is based on a 5 percent franchise fee applicable to gross revenue that it would pay if it were a private utility, a payment in lieu of taxes equal to what a private utility would pay, and a 5 percent rate of return.

What this means in simple terms is that for the past several years the city has treated its utility department as a business rather than a cash cow to be milked any time the city needs money.

Negatives noted by Standard and Poor’s analysts are the city’s unemployment rate, which continues to exceed the national and state averages by 3.5 percent to more than 5 percent. Local officials say the gap is likely higher in some neighborhoods of the city.

Standard and Poor’s analysts not only increased the city’s rating but also gave it a stable outlook for the next two years. That outlook could change if the city makes “excessive” utility fund transfers to balanced its budget.

All in all, not a bad community report card, especially since the city and private investors are hoping to invest more in downtown, the proposed Knowledge Park and maybe other business parks. While those projects will rely on significant private investment, the city’s portion could be in the tens of millions of dollars, city officials have said.

Don Worthington •  803-329-4066 •  dworthington@heraldonline.com

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