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Moody's Investors Service Annual Issuer Comment on Outstanding_General Obligation Bonds Copyrig hted October 19, 2020 City of Dubuque Consent Items # 14. City Council Meeting ITEM TITLE: Moody's Investors Service Annual Issuer Comment on Outstanding General Obligation Bonds SUM MARY: City Manager submitting the annual issuer comment report from Moody's I nvestors Service on the outstanding general obligation bonds and affirming the City's credit rating of Aa3. SUGGESTED Suggested Disposition: Receive and File DISPOSITION: ATTACHMENTS: Description Type MVM Memo City Manager Memo Staff Memo Staff Memo Moody's Annual Issuer Comment on Outstanding GO Supporting Documentation Bonds Dubuque THE CTTY O� � D 1fl-America Ciiy UB E µ.��:�ti��, �, i I j�r I � ML�ste i�ce on t�le Mississi i zflo�•�oiz-zois �P pp zoi��za�9 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Moody's Investors Service Annual Issuer Comment on Outstanding General Obligation Bonds DATE: October 8, 2020 Director of Finance and Budget Jennifer Larson is submitting the annual issuer comment report from Moody's Investors Service on the outstanding general obligation bonds. Moody's Investors Service affirmed the City's credit rating of Aa3. Moody's Investors Service reviews all its ratings annually in accordance with regulations. Moody's conducts these periodic reviews through portfolio reviews in which Moody's reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodologies, recent developments, and a comparison of the financial and operating profile similarly to rated peers. Moody's issues a press release following each periodic review announcing its completion. I concur with the recommendation and respectfully request Mayor and City Council approval. �JC/"'r�"� �y�,t Michael C. Van Milligen MCVM/jml Attachment cc: Crenna Brumwell, City Attorney Cori Burbach, Assistant City Manager Jennifer Larson, Director of Finance and Budget Dubuque THE CITY OF � All•A�eri�a Ciry DuB E ��,,��a.��;.�� , � ► � � Maste iece on the Mississi i zoo�•zo��•zo�3 � pp 2017*2019 TO: Michael C. Van Milligen, City Manager FROM: Jennifer Larson, Director of Finance and Budget SUBJECT: Moody's Investors Service Annual Issuer Comment on Outstanding General Obligation Bonds DATE: October 8, 2020 INTRODUCTION The City of Dubuque received the annual issuer comment report from Moody's Investors Service on the outstanding general obligation bonds. Moody's Investors Service affirmed the City's credit rating of Aa3. BACKGROUND Moody's provides credit ratings and research covering debt instruments and securities. The purpose of Moody's ratings is to provide investors with a simple system to gauge future relative creditworthiness of securities. The firm uses nine rating classifications to designate least credit risk to greatest credit risk: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. Moody's appends numerical modifiers 1, 2, and 3 to each rating classification. Moody's Investors Service reviews all its ratings annually in accordance with regulations. Moody's conducts these periodic reviews through portfolio reviews in which Moody's reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodologies, recent developments, and a comparison of the financial and operating profile similarly to rated peers. Moody's issues a press release following each periodic review announcing its completion. DISCUSSION The Issuer Comment report from Moody's Investors Service was overall positive. The report cited: • The coronavirus outbreak is a social risk under the environmental, social and governance framework, given the substantial implications for public health and safety and the economy. Moody's does not see any material immediate credit risks for Dubuque. • The credit position for Dubuque is strong, and its Aa3 rating is on par with the median rating of Aa3 for cities nationwide. The notable credit factors include a robust financial position, a large tax base, a healthy wealth and income profile and somewhat inflated debt and pension liabilities. • Dubuque has a strong financial position, which is favorable with respect to the assigned rating of Aa3. The cash balance as a percent of operating revenues (33%) is slightly under the US median. Yet, this percentage saw an impressive increase between 2015 and 2019. Moreover, the fund balance as a percent of operating revenues (32.2%) approximates other Moody's-rated cities nationwide. • The economy and tax base of Dubuque are quite healthy and with characteristics consistent with its Aa3 rating. The full value ($4.8 billion) is above the US median, but the full value per capita ($82,200) is slightly weaker than the US median. Lastly, the median family income is 91.2% of the US level. • Overall, the debt and pension liabilities of Dubuque are somewhat inflated, and they are unfavorable relative to city's Aa3 rating position. The net direct debt to full value (2.8%) is much higher than the US median after increasing over the past few years from 2015 to 2019. Furthermore, the Moody's-adjusted net pension liability to operating revenues (2.4x) unfavorably exceeds the US median. ACTION REQUESTED This memorandum is for informational purposes only. Attachments JML 2 � � � � . . ISSUER COMMENT City of Dubuque, �A 2 October 2020 Annua� Comment on Dubuque RATING General Obligation(or GO Related)� Issuer Profile Aa3 No Outlook The City of Dubuque is the county seat of Dubuque County. It is located on the Mississippi River in northeastern lowa, bounded by Wisconsin on the northeast and Illinois on the southeast.The city is approximately 63 miles northeast of Cedar Rapids.The county has a contacts population of 96,802 and a moderate population density of 159 people per square mile.The MichaelArmstrong +1312706.9975 county's median fami�y income is $76,319 (1st quartile)and the August ZOZO unemployment AssociateLeadAnalyst rate was 63% (Znd quartile)?.The largest industry sectors that drive the local economy are michael.armstrong@moodys.com manufacturing, health services, and retail trade. Rachel Cortez +1312.706.9956 AssociateManagingDirector We regard the coronavirus outbreak as a social risk under our environmental,social and rachel.cortez@moodys.com governance framework,given the substantial implications for public health and safety and the economy.We do not see any material immediate credit risks for Dubuque. However,the CLIENT SERVICES situation surrounding coronavirus is rapidly evolving and the longer term impact will depend Americas 1-212-553-1653 on both the severity and duration of the crisis. If our view of the credit quality of Dubuque Asia Pacific 852-3551-3077 changes,we will update our opinion at that time. Japan 81-3-5408-4100 Credit Overview EMEA 44-20-7772-5454 The credit position for Dubuque is strong,and its Aa3 rating is on par with the median rating of Aa3 for cities nationwide.The notable credit factors indude a robust financial position,a large tax base,a healthy wealth and income profile and somewhat inflated debt and pension liabilities. Finances: Dubuque has a strong financial position,which is favorable with respect to the assigned rating of Aa3.The cash balance as a percent of operating revenues (33%) is slightly under the US median.Yet,this percentage saw an impressive increase between 2015 and Z019. Moreover,the fund balance as a percent of operating revenues (3z.z%)approximates other Moody's-rated cities nationwide. Economy and Tax Base:The coronavirus is driving an unprecedented economic slowdown. We currently forecast US GDP to dedine significantly during 2020 with a gradual recovery commencing toward the end of the year. Local governments with the highest exposure to tourism, hospitality, healthcare, retail,and oil and gas cou�d suffer particular�y severe impacts. The economy and tax base of Dubuque are quite healthy and with characteristics consistent with its Aa3 rating.The full value ($4.8 billion) is above the US median, but the full value per capita ($82,200) is slightly weaker than the US median. Lastly,the median family income is 91.2%of the US level. .. . . . . .. . . . . .. . . . . .. . . . . .. . . . . .. . . . . .. . . . . ... .• Debt and Pensions: Overall,the debt and pension liabilities of Dubuque are somewhat inflated and they are unfavorable relative to city's Aa3 rating position.The net direct debt to full value (2.8%) is much higher than the US median after increasing over the past few years from 2015 to Z019. Furthermore,the Moody's-adjusted net pension liability to operating revenues (2.4x) unfavorably exceeds the US median. Management and Governance: lowa cities have an institutional framework score 3 of"Aaa,"which is very strong. Even with property tax caps on general and emergency levies,cities have strong revenue-raising flexibility due to various additional levies, induding an unlimited levy for employee benefits. Unpredictable revenue fluctuations tend to be minor given the stability of the sector's primary revenue source,which are property taxes. Expenditures mostly consist of personnel costs,which are highly predictable. lowa's public employee collective bargaining law limits the scope of bargaining to base wages for non-public safety emp�oyees.Across the sector, fixed costs are generally elevated and driven mainly by debt service. Sector Trends - lowa Cities lowa cities will continue to generally benefit from strong economies over the near term despite the coronavirus pandemic,especially around Des Moines and the Cedar Rapids- lowa City Corridor. Rural areas with a high degree of concentration in agriculture may lag behind the state as performance in agriculture sectors remains weak. Growing operating revenues from a genera�ly diverse economy coupled with reduced, but sti�l adequate revenue raising flexibility for most cities,will support expected pension contribution increases to service the unfunded liabilities of the state-managed plans. This pubGcation does not announce a credlt rating action.For any credlt ratings referenced in this pubGcation,please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 2 October 2020 City of Dubuque,IA:Annual Comment on Dubuque ... .• EXHIBIT 1 Key Indicators 4 S Dubuque 2d15 2D16 2017 2018 2d19 US Median Credit Trend Economy 1 Tax Base Total Full Value $4,148M $4,19ZM $4,434M $4,557M $4,790M $1,904M Improved Full Value PerCapita $71,OZ7 $71,520 $75,928 $78,125 $82,200 $94,106 Improved Median Family Income{°!o of L15 0 0 0 0 0 0 90/0 89/0 91/0 91/0 91/0 111/o Sta b le Median) Finances Available Fund Balance as%of Operating Revenues lb.l% 19.7% 24.4% 28.9% 32.2% 34.6% Improved Net Cash Balance as°!o of Operating 5.0% 15.4% 24.5% 28.6% 33.0% 39.6% Improved Revenues Debt/Pensions Net Direct Debt 1 Full Value 3.7% 3.5% 3.1% 2.8% Z.S% 1.1% Improved Net Direct Debt 1 Operating Revenues 2.20x 1.94x 1.76x 1.69x 1.74x 0.84x Stable Moody's-adjusted Net Pension Liability 3.5% 3.5% 3.7% 3.9% 3.9% 1.9% Stable (3-yr a�erage)to Full Value Moody's-adjusted Net Pension Liability 2.08x 1.93x 2.08x 2.31x 235x 1.55x Stable (3-yr average)to Operating Revenues 2d15 2016 2d17 2018 2d19 L15 Median Debt and Financial Data Population 58,409 58,535 58,410 58,340 58,276 NIA Available Fund Balance($OOOs) $11,08b $14,779 $19,052 $22,027 $25,252 $8,028 Net Cash Balance ($OOOs) $4,117 $11,b04 $19,096 $21,820 $25,956 $9,530 Operating Revenues($OOOs) $b8,892 $75,159 $78,100 $76,321 $78,540 $23,172 Net Direct Debt ($OOOs) $151,620 $145,715 $137,134 $128,749 $136,385 $19,139 Moody's Adjusted Net Pension Liability(3-yr average} ($OOOs) 5143,618 $144,854 $1b2,510 $17b,013 $184,895 $35,448 Sourw:Moody's Investors Service EXHIBIT 2 Available fund balance as a percent of operating revenues increased from 2015 to 2019 �Avaflable Fund 8alanee as%of dperatfng Revenues L15 Gtfes Medfan 40% 30% 20% 10°/ - . 2015 2016 2017 2018 2019 Source:Issuer financial statements;Moody's Investors Service 3 2 October 2020 City of Dubuque,IA:Annual Comment on Dubuque ... .• EXHIBIT 3 Full value of the property tax base increased from 2015 to 2019 {millions) Total Full Value $5,00❑ $4,500 � � $4,000 2015 2016 2017 2018 2019 Source:Issuer financia(statements;Government data sources;Offering statements;Moody's Investors Service EXHIBIT 4 Moody's-adjusted net pension liability to operating revenues increased from 2015 to 2019 ■�ebt Pensfons 6_Ox 4.Ox 2.Ox . - - - - O.Ox 2015 2096 2017 2018 2019 Source:Issuer financial statements;Government data sources;Offering statements;Moody's Investors Service Endnotes 1 The rating referenced in this report is the issuer's General Obligation(GO)rating or its highest public rating that is GO-related.A GO bond is generally backed by the full faith and credit pledge and total taxing power of the issuer.GO-related securities indude general obligation limited tax,annual appropriation,lease revenue,non-ad valorem,and moral obligation debt.The referenced ratings reflect the government's underlying credit quality without regard to state guarantees,enhancement programs or bond insurance. 2 The demographic data presented,induding population,population density,per capita personal income and unemployment rate are derived from the most recently available US government databases.Population,population density and per capita personal income come from the American Community Survey while the unemployment rate comes from the Bureau of Labor Statistics. The largest industry sectors are derived from the Bureau of Economic Analysis.Moody's allocated the per capita personal income data and unemployment data for all counties in the US census into quartiles.The quartiles are ordered from strongest-to-weakest from a credit perspective:the highest per capita personal income quartile is first quartile,and the lowest unemployment rete is first quartile. 3 The institutional framework score assesses a municipality's legal ability to match revenues with expenditures based on its constitutionally and legislatively conferred powers and responsibilities.See US Local Government General Obligation Debt Se tember 2019�methodology report for more details. 4 For definitions of the metrics in the Key Indicators Table,US Local Government General Obligation Methodology and Scorecard User Guide(Julv 2014�. Metrics represented as N/A indicate the data were not available at the time of publication. 5 The medians come from our most recently published local government medians report,Medians-Tax base growth underpins sector strength,while pension challenges remain(May 2019�which is available on Moodys.com.The medians presented here are based on the key metrics outlined in Moody's GO methodology and the associated scorecard. 4 2 October 2020 City of Dubuque,IA:Annual Comment on Dubuque ... .• �O 2020 Moody's Corporation,Moody's Investors Service,Inc,Moody's Analytics,Inc.and/or their licensors and affiliates(collectively,"MOODY'S").All rights reserved. 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MJKK or MSFJ(as applicable)hereby disdose that most issuers of debt securities(induding corporate and municipal bonds,debentures,notes and commercial paper)and preferred stock rated by MJKK or MSFJ(as applicable)have,prior to assignment of any credit rating,agreed to pay to MJKK or MSFJ(as applicable)for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER 1236136 5 2 October 2020 City of Dubuque,IA:Annual Comment on Dubuque ... .• CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 E M EA 44-20-7772-5454 MOODY'S INVESTORS SERVICE 6 2 October 2020 City of Dubuque,IA:Annual Comment on Dubuque