Maintain Best-in-Class Municipal "AA" Bond Rating

Bond Ratings

One of Tallahassee’s strategic goals is to maintain our best-in-class municipal “AA” bond rating. The City sells bonds to raise funds for long-term, expensive, capital projects. The City receives money up-front upon the sale of the bond, which allows them to fund these projects. The City then pays interest on the bond biannually and pays down the principal annually over the life of the bond.

The City of Tallahassee issues three types of bonds: capital bonds, consolidated utility system revenue bonds, and energy system revenue bonds. The interest and principal payments on each type of bond are financed differently. For example, payments on capital bonds are supported by the local government half-cent sales tax, the guaranteed entitlement revenues, the local communications services tax, and the public service tax.

Bond ratings are a way to measure the creditworthiness of the issuer. They reflect the ability and likelihood of the issuer, in this case Tallahassee, to repay the principal and pay the interest on the bond. The higher the rating, the more confident an investor can be in lending the City funds. A higher bond rating can also help Tallahassee obtain funds at a lower interest rate, saving the City money. Tallahassee’s bond ratings, as graded by the three major rating agencies, are shown in the chart below.

Tallahassee’s bonds ratings are on level with other comparable cities in Florida. For example, Lakeland also issues Energy System Revenue Bonds which are rated identically to Tallahassee’s. Similarly, Tallahassee and Orlando both issue Capital Improvement Bonds, and both cities possess an “Aa2” rating from Moody’s Investors Service and an “AA+” from Fitch Ratings.

For several years Tallahassee has maintained these high bond ratings in accordance with the goal set out in the strategic plan. The City thus has a very strong capacity to meet financial obligations with regards to paying the interest and principal on bonds.

In the coming years, the City is interested in constructing a new police station, a new fire station, and a new senior center, as well as investing in technology upgrades.

Chart References:

Bond Ratings - Overview, Examples, List of Bond Rating Systems (corporatefinanceinstitute.com)

Moody's Investors Service / Understanding ratings (moodys.io)

Rating Definitions (fitchratings.com)