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DeKalb hopes to improve outlook of credit rating

Published: Monday, Oct. 8, 2012 5:30 a.m. CDT

DeKALB – The city still has an Aa2 credit rating with a negative outlook from Moody’s Investors Service, but city officials believe they can improve the outlook by the year’s end.

Assistant City Manager Rudy Espiritu said the outlook remains negative because even though the city’s fund balances are better, they are too low for Moody’s.

“They acknowledged our fund balance has grown tremendously,” Espiritu said. “Last time we met with Moody’s the fund balance was $22,000. Now we’re getting close to $4 million.”

Espiritu said if the city showed it had two fiscal years of fund balance growth in an audit that is due in December, then Moody’s would remove the negative outlook designation.

However, this was only a verbal commitment from the rating agency.

Espiritu said the city has continually grown its fund balances as other municipalities have seen their balances fall as they spend more in a recession.

Espiritu said the city is working to build its reserves to 25 percent of their annual expenditures. For instance, if the city spends $1,000 a year, there should be $250 in reserves.

“We’re slowly getting there,” Espiritu said.

Moody’s researches a multitude of commercial and governmental agencies and gives them a rating to reflect how reliable they are to borrow from.

An Aa rating is the second-highest rating Moody’s gives out, meaning they are “judged to be of high quality and are subject to very low credit risk.”

In addition to weak fund balances, Moody’s also took note of the city’s declining property values.

Espiritu said this is not surprising, but he noted it’s been happening all over the country since the collapse of the housing market in 2008.

“Until the economy improves, we’ll see that nationwide,” Espiritu said.

Moody’s report notes that the city has a “relatively stable tax base” thanks to the presence of Northern Illinois University.

Even with student enrollment declining and an unsure fiscal future, “the university has not undergone layoffs and continues to redevelop and expand its footprint in the city.”

The agency also looked favorably on the city’s willingness to reduce expenditures, noting that it has reduced its workforce by 20 percent since 2008.

The city’s debt was not an issue for Moody’s, stating that it’s “direct debt burden should remain manageable due to limited future borrowing” and the decreasing values of other loans.

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