Danville’s AAA disclosure
One of the most common complaints in muniland is over a lack of disclosure. Public officials often say too little too late about fiscal matters. That is why it was a pleasant surprise to come across the proactive response of Joseph Calabrigo, the town manager of Danville, California, to Moody’s announcement that it is reviewing credit ratings associated with lease-backed and/or general obligation debts issued by 32 cities in California.
Danville is a well-to-do town of 42,000 located about 30 miles east of San Francisco. The city has two sets of bonds outstanding that are included in the Moody’s review. These Certificates of Participation (COP) were issued to acquire and construct public parking in the downtown area. In speaking about it, Calabrigo was separating the review of these bonds from the general credit quality of Danville, which is one notch higher at Aa1.
From the Danville town blog:
Danville has an overall credit rating of Aa1, as assigned by Moody’s. This rating shows a strong credit profile and overall creditworthiness. The Town’s current Aa1 rating is not under review by Moody’s.
Right at the top, Calabrigo states the town credit rating is high and solid.
The Moody’s review is being conducted as a result of the change in the credit profile of the State of California and their concerns regarding the effect of the economy upon the State and cities in general. Moody’s representatives have characterized this as a “recalibration of the methodology” being used by Moody’s to rate lease-backed debt.
Calabrigo explains how Danville has just been swept up in a process that Moody’s is conducting for the entire state. He invites citizens to review the Moody’s report and provides a link:
Moody’s is an independent rating agency with responsibility to investors. This review reflects their concerns regarding the condition of the state’s finances and the financial condition of the typical California city. Danville is not a typical California city with respect to its finances and financial health. The Town continues to be in a very positive fiscal condition.
He frames what the role of Moody’s is and how it works for bond investors. He says simply and clearly that the town’s finances are in very good shape.
Although the Town has no plans to undertake any additional debt financings, our overall creditworthiness remains unchanged. With respect to the two debts under review, both are “recognized obligations” that have been approved by Contra Costa County Auditor-Controller and the State Department of Finance, and Property Tax Trust Fund revenues are being received to meet these debt service obligations without affecting the Town’s General Fund.
Calabrigo very clearly delineates that the cash flows for the two sets of bonds come from dedicated revenues and not the town’s general fund. Bankrupt San Bernardino, for example, has been mixing monies from its general and special funds with very weak accounting controls.
Here is Calabrigo’s statement that the town of Danville’s finances are in outstanding shape. After reading this, I am quite surprised that Moody’s doesn’t rate the town Aaa instead of one notch lower at Aa1:
- Danville is not part of any defined benefit pension system for Town employees, and has no OPEB liabilities.
- Danville’s Statement of Net Assets shows increasing fund balances for the past five fiscal years.
- Danville’s property values have remained very strong in comparison to what has occurred throughout the State of California and Contra Costa County.
- Danville’s sales tax revenues are at an all-time high and have increased for the past three fiscal years.
- Danville’s operating reserve is funded at over 40% of the operating budget, and the Town has set aside significant capital reserves.
- Danville’s annual budget includes 10 year fiscal forecasts which are used to plan for future needs and services and to ensure long term fiscal sustainability.
Kudos to Danville Town Manager Joseph Calabrigo. This is the most proactive and clear disclosure I’ve ever seen in muniland.