Franklin’s credit in good shape

Published 1:13 pm Tuesday, November 25, 2014

When considering adding new debt recently through the $1.8 million QZAB loan, Ward 2’s Benny Burgess wondered just exactly what they might be getting themselves into.

“Is there a magic number of what total debt should stay under?” Burgess asked Kyle Laux of Davenport and Company back at the joint meeting between the Franklin City Council and the Franklin City School Board.

This past Monday, Laux reported back. Comparing the projected tax-supported debt to the assessed tax base, Franklin will be at 2.44 percent for the year 2015. City policy states that the debt has to be under 5 percent. Comparing that to other localities that have a credit rating of AA, it’s about on par. The median is 2.5 percent for AA localities.

Going forward, he said, the debt supported by taxes starts to fall off a cliff. By 2017, its at 2.14 percent, and it drops to 1.6 percent by 2020. By 2025, it’s at .63 percent.

However, a better way to look at it is comparing debt service to expenses, Laux said. The city’s doing even better in that category. City policy is 10 percent and the AA locality median is 8 percent. For 2015, Franklin will be at 3.19 percent. It is projected to remain above 3 percent, assuming all else is equal, until 2027, when it will be at 2.86 percent. By 2030, the debt falls off a cliff in a good way, City Manager Randy Martin said. Then the ratio will be at .69 percent.

In terms of capacity for adding debt, Laux said the city is in good shape toward maintaining its AA credit rating. An AA credit rating is the second highest a city can achieve per Standard and Poor’s rating service, and it means that a city has a “very strong capacity to meet financial commitments.”

He said the cash flow situation may be harder to wrestle with should the city wish to borrow additional debt beyond the QZAB funds.

“In my experience, the city is in a good place with its debt situation,” Martin said. “Our debt service goes way down in a short period of time in the future.”

He said that debt is a part of the picture for every city as a funding source, though he added that he’d always prefer to first consider the pay as you go model in terms of paying for needs the city or school system might have.