Branson’s budget took another step forward on Oct. 21 as its Capital Improvement Committee received information about the city’s bond rating, bonding capacity, debt obligations, and other information that could impact on the city’s ability to finance needed capital improvement projects now and in the future. The city’s bond consultants told the committee the city’s bond rating was “good for a city of this size.”
Rick McConnell from Gilmore & Bell, the city’s bond attorney, reviewed the information about the types of bonds the city had and its capacity to bond further. He pointed out the vast majority of the city’s bond debt is not in the form of general obligation bonds but is guaranteed by annual appropriations and revenues from specific sources. McConnell pointed out that general obligation bonds required a vote of the citizens.
When asked exactly what the bonding capacity of the city was, McConnell indicated there was no set defined legal limit and it depended on a number of factors. He explained, “There is no capacity for risk in the market” and was not certain as to what the market’s reaction would be to a big bond issue at this time. He also pointed out that the city’s 4 percent estimate for interest was low and thought a 6 percent figure would be more appropriate.
Kelsi Powell and Dennis Lloyd from Columbia Capital Management gave a review of the city’s debt obligations. Powell said the city had an Annual Appropriation Credit Rating of Baa1 (Stable) from Moody’s and BBB+ (Stable) from S&P for bonds guaranteed under that method such as the Branson Landing Bonds and an Issuer Credit Rating of A1 (Stable) from Moody’s for General Obligation Bonds.
She said that in terms of credit rating, Branson is unique because of the effect tourists have on its economy. She described the ratings as good and credited them to Branson’s steady tax base growth, consistent and strong financial performance, historical commitment to make annual appropriation payments, and the resilience of its tourism based economy during economic downturns.
Powell pointed out there are credit challenges in terms of Branson’s high debt burden, the economic sensitivity of its main source of revenue and the risks commonly associated with major development projects. She specifically pointed out some potential rating agency concerns that could impact on Branson’s future ability to issue bonds.
One of those concerns was depleting its existing reserves. Recently, in speaking of the city’s reserves, Branson City Administrator Dean Kruithof stated that Branson is where it needs to be for 2009 but he has concerns about what happens in future years if the current down trend in the city’s reserves is not reversed.
Powell said the credit agencies would also be concerned about a significant and trending decrease in revenues. The estimate being used for the 2009 budget year is about a 4 percent decrease in revenue.
In looking at the anticipated debt that will be needed in the not too distant future to finance sewer and water projects both McConnell and Lloyd cautioned the committee. They said that under the current conditions getting bonds issued is going to be a challenge for any community because investors are adverse to any risk. Lloyd pointed out that the more debt the city has the harder it will be to get bond financing in the future.
Furnished Courtesy of the Branson Daily Independent.
