Moody’s downgrades DeKalb’s bond rating

Based in part on the City’s pension liabilities, Moody’s Investors Service has downgraded DeKalb’s general obligation rating from Aa2 to Aa3. The rating, which was released today, is based on the City’s FY2015 audited Financial Statement which still showed a large pension liability. This liability is due in part to the City using the lower funding level allowable by the State of Illinois, as well as a change to the Government Accounting Standards Board (GASB) liability reporting requirement. Moody’s also cited the City’s declining tax base from 2009-2015 as a contribution to the rating, but acknowledged DeKalb’s tax base increase in 2016 of 1.6 percent.

“The City acknowledges the downgrade and has been proactively working toward not only improving the rating, but to strengthen the City’s fiscal health,” said Mayor John Rey.

Initiatives in place by the Finance Department include efforts to decrease the unfunded pension liability and increase the City’s reserves. Efforts are also underway to expand the City’s revenue base and limit reliance on sales tax revenue. These factors will not be noted by Moody’s until the FY2016 audited financial statements have been finalized in December 2016.

In its report, Moody’s did note that the City financial operations and reserves continue to show improvement in creating solid reserves and a stronger financial position for the future.

Specific actions taken by the City to improve fiscal health include:

•  The City has increased its reserves over its 25% reserve fund balance policy in the last two years. This dollar amount, which was $22,169 in 2008, sits at more than $9,000,000 in 2016.
• The City has enhanced its financial policies to incorporate several “Best Practice” policies. These policies are outlined in the City’s budget document.
• The City adopted a ten year “Strategic Plan” this year, which was incorporated into the FY2016.5 budget document.
• The City’s levy was increased in December 2015 to contribute an additional $824,156 to the pension funds to increase funding levels. This was a 21.60 percent increase over last year’s levy contribution. This increase also assisted in expanding the City’s revenue base to not be so reliant on sales tax revenue.
• The City also increased two other revenue streams from video gaming fees and ambulance fees in FY2016.5.

“To ensure long-term financial sustainability and strength, the City is committed to continue to try to increase the pension funding percentages and look at methods to expand and diversify the City’s tax base,” said Finance Director Cathy Haley. An Aa3 rating is still within the Aa category, an above average rating that will allow borrowers to have strong creditworthiness and still pay a lower interest rate.