SHOCKER! Indianapolis’ Top AAA Credit Rating Cut. Means Higher Interest Costs, Trouble Borrowing For City Gov’t

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indianapolisRESPONSE FROM MAYOR BALLARD JUST ADDED! In a stunner the credit rating of the City of Indianapolis., which has enjoyed the pristine top of the line AAA credit and bond ratings was cut this week. Standard and Poor’s Ratings Services, one of the world’s top credit agencies, reduced Indianapolis’ credit ratings on several of their bonds which are backed by tax dollars and the faith and credit of the City. S&P cut the City’s overall credit rating from AAA to AA. On the city’s General Obligation and ad-valorum property tax backed debt, that credit rating was cut from AAA to AA. The City’s certificates of participation debt was cut from AA-Plus to AA-minus. And the City’s moral obligation debt was cut from AA to A.  The lowered credit ratings means increases in the interest rate the City has to pay on its debts.  A sum that could add up to tens of millions of dollars additional each year.  Indianapolis has bragged about its sterling AAA bond rating for several years.  For Standard & Poor’s to make credit rating cuts means that the credit rating agency is possibly uncomfortable with the amount of debt the City is incurring.  The economic condition of the City, with continued high unemployment and a poverty rate that has increased 88% since 2000; especially a sharp jump in the past three years, could also have impacted Standard & Poor’s decision. Afternoons with Amos was the first Indianapolis media to break the story of the city’s credit rating cut, which was announced by S&P on Tuesday, December 17, but didn’t become public in Indianapolis until Thursday, December 19. In a statement Mayor Greg Ballard dismissed the Standard & Poor’s action. Mayor Ballard said, “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.  S&P noted Indy’s strong fiscal management and good economy; however it cautioned against the City’s use of reserves in recent years to fund ongoing operations. 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. That decision played heavily on S&P’s ratings decision.  Since Indy remains 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.”  Mayor Ballard’s statement failed to note that under the budgets prepared by his Administration and adopted, mostly unchanged by the City-County Council, existing fund balances have been used for ongoing city expenses. The City didn’t provide a copy of S&P’s rationale, so we don’t know if the Mayor’s contention that police funding was the reason for the credit downgrade. City-County Council President respoinded to the credit downgrade saying, “We are disappointed that Mayor Ballard would lay the blame for city’s credit rating downgrade at the feet of the City-County Council, particularly after we worked so closely with him to craft a budget that passed with bipartisan support.  For the last six years, Mayor Ballard has neglected to adequately finance and staff public safety in our city, and our citizens have been forced to deal with the consequences of his inaction every day.  Protecting our citizens is our number one priority, and Mayor Ballard signed off on this bipartisan plan with the 2014 budget.  Rather than revise the past, I, along with other Councillors, have been working on a new set of polices that will make the use of Tax Increment Financing in our city more transparent, disciplined, and responsible, as well as leading a study commission to identify public safety funding and staffing needs for the long term.   Working together on these kind of initiatives is the way forward.”

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