In an historic milestone for the city of Apache Junction, two bond rating firms have assigned a near-perfect rating for the city as it enters the municipal finance world for the first time in its 44-year history. The excellent rating translates to millions in savings to the city residents at a critical time for the economy.
“This is just like someone getting a very high credit score when they are about to go out and buy their first home,” said Apache Junction City Manager Bryant Powell. “We are entering the next chapter in city finances and we couldn’t have gotten off to a better start.”
The Fitch Ratings and Standard and Poor’s rating system both judged the city’s finances sound and ability to pay off bonds as excellent, assigning a “AA” rating to the city in its first such evaluation ever. Both services called the city’s outlook “stable.” The top rating for municipalities under both systems is “AAA.”
“Apache Junction is in the midst of significant economic development, which we expect to support a positive revenue trend,” Standard and Poors said in its rating announcement. “While an expanding service area will require increased operating expenditures, we believe that the city's minimal debt, reliance on pledged revenues for operations, and conservative budgeting practices reinforce our expectation that pledged revenue will continue to provide at least very strong maximum annual debt service coverage on the lien.”
The rating services noted that the city was receiving consistent revenues from sale taxes and other sources while using sound conservative fiscal policy.
“We’ve been saving up for a long time in preparation of our time to grow, and grow intelligently,” Powell said. “It’s all paying off now as we get ready to enter the bond market and will get lower interest rates as a result of this rating.”
The city’s first use of the bonds will be to help pay off current and expected obligations for public safety pensions, an unfunded liability. Those costs have skyrocketed for all local and regional governments as law enforcement personnel take retirement earlier and live longer, among other factors.
“Given the city's recent growth and the favorable regional economic climate, pledged revenue growth prospects are strong,” Fitch said in its announcement. “The revenue stream has realized nine years of consecutive growth, and based on fiscal 2021 pledged revenues cover projected maximum annual debt service…”
Fitch further noted, “The city employs strong budgetary management practices, as demonstrated by its favorable recent operating performance. Over the past several years, the city has posted operating surpluses which management largely attributes to conservative budget projections. The city has a history of using excess revenues to finance one-time items.”
The city will enter the bond market in June after the City Council approved an expenditure that allows the city to fund its pension obligations now and save in the long run.