City of Franklin credit rating upgraded

Published 10:20 am Wednesday, May 14, 2014

FRANKLIN—As of April 22, Franklin’s got a better credit score.

Standard and Poor’s Rating Service has upgraded Franklin from a rating of A+ to a rating of AA on the city’s general obligation bonds.

Though there is a weak local economy, having some access to the Greater Hampton Roads economy helped, and local city council fiscal policies have also played a factor.

“We believe the city’s good management practices have contributed to financial strength that mitigates some of the risk associated with the limited local economy and economically sensitive revenue,” the organization stated in a report. “We anticipate that Franklin will maintain its financial strength and therefore do not anticipate changing the rating within the two-year outlook horizon. However, should the city fail to take appropriate action to mitigate any budgetary pressure that may affect budgetary performance and flexibility, we could lower the rating.”

In a report sent to the city, Standard and Poor’s was impressed with Franklin’s budget flexibility dated June 30, 2013. General fund reserves were at $6 million, which represented 29.3 percent of adjusted general fund expenditures.

Budget performance was adequate, according to Standard and Poor’s. There was a general fund surplus of around $520,000 in 2013, or about 2.5 percent of expenditures. Total governmental funds surplus of approximately $790,000, or 3.6 percent of expenditures.

Liquidity is strong locally. Primary government cash represented 44 percent of expenditures and more than 7.5 times debt service costs at fiscal year end 2013.

“We believe that the city has strong access to external liquidity given its GO debt issuance in the past 15 years,” the report stated. “Franklin does not report any direct purchase debt or contingent liabilities with tender options or immediate acceleration risk.”

The report credited strong management with good financial management practices under financial management assessment methodology.

Locally, there is a very strong debt and contingent liability profile net of the city’s self-supporting enterprise debt. Net direct debt represents 67 percent of governmental revenue, while the carrying charge was 5.7 percent of governmental expenditures in 2013.

Overall net debt represents 2.4 percent of market value. Amortization is rapid, with officials planning to retire 70 percent in 10 years. Management has no plans to issue any long-term debt over the next two years.

Franklin’s participation in the Virginia Retirement System for pension benefits also plays a factor. As well, the city provides other post-employment benefits, which it funds on a pay-as-you-go basis.

Being in Virginia also played a role, as other cities are rated strongly in Standard and Poor’s institutional framework.

City Martin Randy Martin was excited to receive the upgrade.

“I would like to congratulate city council for their steadfast fiscal policies,” he said. “The rating service values the city’s commitment to financial policy, and its practice in recent years.”

Martin said this is good news.

“It will reduce the cost to finance any big expenses, as well as other benefits,” he said. “We’ve got a reputation as a viable entity.”

Standard and Poor’s considers a higher rating unlikely due to the weak local economy.