OXNARD, Calif. – Standard & Poor’s (S&P) Global Ratings has revised its outlook from “stable” to “positive” and has affirmed its existing “A” issuer credit rating for the City of Oxnard. S&P is a leading provider of transparent and independent credit ratings worldwide.
According to S&P: “the City’s refreshed management team is helping the city build on progress it has made during the past three years in addressing management deficiencies and opportunities.” S&P also applauded “an improved organizational culture” and “a recently adopted ‘sunshine ordinance’ designed to go beyond the state’s already robust transparency procedural requirements and a proposed ethics ordinance that will go before voters in March 2020.” S&P further commented upon the City’s “willingness to address structural budgetary challenges ahead of a potential future recession by making staffing reductions for the fiscal 2020 budget.”
The release of the S&P report follows a “letter of encouragement” from the City’s independent financial auditor, Eadie and Payne, that also recognized the City’s significant progress in addressing prior financial issues and “rebuilding, recovering and reconnecting” with the community it serves.
“We’re pleased that two highly-respected, independent third parties are validating our efforts to improve Oxnard’s financial standing,” said Mayor Tim Flynn. “While we’ve faced challenges and recently had to make tough choices with budget cuts, we now have evidence that our actions are yielding positive results and improving our City’s finances.”
City Manager Alex Nguyen stated, “It’s incredibly encouraging that our financial management improvements are being recognized for their significant progress. We know that we still have work to do, but industry experts are confirming that we are on the right path towards addressing the issues.”
The S&P report sees the potential to raise the City’s bond rating above the “A” level within the next two years should the City’s new management team “effectively wield and strengthen financial management policies and practices, particularly if [S&P] see gains in other areas such as a swing to strong financial performance and continued tax base growth.”
Increasing the City’s bond rating is important as it strengthens Oxnard’s ability to secure favorable interest rates when borrowing money, which allows the City to maximize its investments that fund improvement projects throughout Oxnard. A high bond rating for a city is similar to how an individual person works to build his or her personal credit rating. When a person has a high credit rating, he or she has access to securing loans with lower interest rates, which ultimately saves him or her money through lower interest rates. When the City has a high credit rating, it can either save more money or complete more projects and offer the community more services that cost less.
S&P’s outlook upgrade and affirmation of the City’s “A” issuer credit rating accompany a forthcoming City bond issue approved by City Council on October 1. This bond issue will refund $17 million of the 2011 Lease Revenue Bonds at lower interest rates and generate $7 million of net proceeds to fund the first phase of a new enterprise resource planning software system project, which will replace 30-year-old “green screen” technology and many paper-based City processes.
The S&P report also identified potential challenges facing the City that could negatively impact a future increase of its bond rating. These issues include:
- The political struggle over sewer rates and fees. According to S&P, “a citizen initiative to reverse the [rate] increase, approved by a decisive 72% margin in November 2016, again put the [sewer] fund’s liquidity at risk.” The report states that if political controversy emerges again surrounding the wastewater rates and makes it “more difficult for the City to find consensus on budgeting decisions,” the City could face a downgrade from S&P in its bond rating.
- A separate ongoing lawsuit “could force the city to rebate all or a portion of previously collected fees to its utilities from the general fund and continuing fees for street projects, [and] represents a material contingent liability risk, in our [S&P’s] view.”
- While S&P thinks the City “has taken substantive measures to resolve a budgetary imbalance,” the rising risk of a recession would cause the City’s budgetary environment to get “more challenging in the medium term.”
- There is also a potential risk to return to a lower bond rating if there is a stalling of organizational improvements due to additional senior management turnover in the future.
The S&P report created for the City of Oxnard is available online here. The “letter of encouragement” from the City’s auditor, Eadie and Payne, can be viewed here.
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