Oakland’s ratings are at their highest in City’s history; second-highest rating available; analysts call out the City’s strong financial position, good fiscal policies and practices, and “experienced, prudent management team”
Oakland, CA – The City of Oakland’s credit ratings were upgraded to Aa1 with “stable outlook” by credit rating agency Moody’s, and affirmed at AA with an upgraded outlook from “stable” to “positive” by Standard and Poor’s (“S&P”). Oakland is one of only 14 cities in California (of 482) to be rated Aa1 by Moody’s.
The Moody’s upgrade recognizes the City’s strengthened fiscal position and robust financial policies, participation in the strong Bay Area economy, and prudent management. The analysis noted: “The city’s current, very strong fiscal position, combined with strengthened fiscal policies and experienced, prudent management, have positioned the city well for its clear fiscal and social challenges, including increasing pension costs, sharply increased homelessness and declining housing affordability.”
Looking ahead, Moody’s stated, “We expect that the city will maintain its strong financial position given management’s commitment to strategic, long-term financial planning that is supported by prudent fiscal policies.” They also positively note that “nearly 80% of all outstanding debt will retire within the next 10 years.”
S&P’s ratings also reflected their assessment of the city’s very strong economy; strong management, with good financial policies and practices; and strong budgetary performance. Analysts concluded: “We anticipate that economic growth and a cautious approach to budgeting will enable the city to continue to add to reserves while managing the challenges of addressing community service priorities amid higher pension and Other Post-Employment Benefits (OPEB) contribution requirements, and catching up on deferred maintenance.”
“I’m grateful the rating agencies have recognized Oakland’s improved commitment to prudent financial policies and sound fiscal management,” said Oakland Mayor Libby Schaaf. “Since the Great Recession, this Administration and the City Council have continued to invest in critical services—like homelessness and illegal dumping—while more aggressively addressing our long-term financial health. Our recent acts like establishing a “vital services rainy day fund,” paying down unfunded liabilities, and addressing our deferred maintenance backlog via initiatives like the Great Pave will save the city money today, and ensure future generations inherit a stronger and more stable city government.”
For more than a decade, City leadership has focused on strengthening the City’s financial health. The City Council has adopted policies that fund operating reserves, created a “rainy day fund,” reduced retiree health care costs (Other Post-Employment Benefit/OPEB), and set aside resources to fund long-term OPEB liabilities. S&P notes that these financial policies position the City to better manage recession risks. The rating agencies also note the City’s challenges of increasing pension and OPEB costs, increased homelessness, declining housing affordability, and deferred maintenance backlog.
City Administrator Sabrina Landreth expressed appreciation for Oakland’s public safety employee unions—the Oakland Police Officers Association, the International Association of Firefighters (Local 55)—who partnered with the Administration last year to address Oakland’s long-term financial stability by agreeing to place caps on the amount the City contributes for retiree health care benefits. These retiree medical caps represent significant relief to the City in beginning to address the growing and unfunded liabilities associated with providing health care to employees after they retire. These reforms will reduce the unfunded liability by $175 million in the near term and are projected to save $391 million within the next 15 years.
“This rating increase shows that our partnership with Oakland’s police and firefighters, along with our civilian unions—the International Brotherhood of Electrical Workers (IBEW) Local 1245 and the Confidential Management Employees Association (CMEA), Service Employees International Union (SEIU), Local 1021, and International Federation of Professional and Technical Engineers (IFPTE), Local 21—has allowed us to bolster the City’s long-term financial outlook and preserve the services our Oakland community needs,” said Ms. Landreth.
The upgrades will allow the City to sell its bonds to investors at lower interest rates, thereby reducing the cost of financing capital improvements over time and decreasing the property tax levy required to support the bonds.
The table below presents the credit-rating scales used by Moody’s and S&P. The ratings are an evaluation of creditworthiness, with Aa1/AA, the second and third highest available, both defined as high grade.
Based on press release from City of Oakland, sent to Zennie62Media, Inc.