From Staff Reports
A strong economic future, a stable fiscal past and a population with a collective buying
income well above the national average are among the reasons for an upgrade of the Town’s credit rating, according to Kent Austin, Director of Finance.
"Standard & Poor’s, one of the nation’s largest credit rating agencies, has sent word that the Town’s credit rating has been upgraded from A to AA. This is the second highest category that the rating agency assigns, and means they feel that Prosper has a very strong capacity to meet its financial commitments," he said.
Credit ratings are forward-looking opinions about credit risk. Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer to meet its financial obligations in full and on time.
The upgraded rating is assigned to the Town’s General Obligation bonds, monetary instruments used by local governments to finance infrastructure, capital expenditures and other large-scale purchases. The upgrade means that lenders should feel certain that any debts incurred by the Town are a very worthy risk, and can thereby offer the Town better lending rates.
"The advantages of a higher rating are, on one hand, easy to calculate since we can expect better financing rates, but they are also indirect because a higher rating makes us far more attractive to other kinds of investors. Developers, financiers, brokers and real estate companies want to do business in a city with a stable economic outlook, and a higher
rating gives us that intangible benefit," added Town Manager Harlan Jefferson.
For example, the previous A rating meant that while Prosper had a strong capacity to meet financial commitments, it was somewhat susceptible to adverse economic conditions and changes in circumstances. Such uncertainty can have an adverse effect on investment decisions by outside companies looking to establish a foothold in a city.
In addition to a stable financial past, illustrated by a conservative outlook on expenditures and impressive reserve levels, the rating agency noted that Prosper’s economy is very strong, with its projected per capita effective buying income at 139.4% of the U.S. average.
Moreover, S&P found: a per capita market value of $106,974; access to the broad and diverse economy of the Dallas-Fort Worth metropolitan area; a county unemployment rate of 6.1%; strong flexibility in the budget, and; reserves above 30% of expenditures.
The report also cited Prosper’s management conditions as strong, with good financial practices, strongly supported and encouraged by the Council. And, unlike cities struggling to fund their own retirement system, putting them at risk, Prosper participates in the Texas Municipal Retirement System to provide pension benefits for employees.
Even with a strong economy, though, the rating agency noted that a more diversified tax base, including more commercial investments, would put the Town in better financial footing.
"With the guidance of a fiscally conservative Council, we certainly plan to continue to maintain our financial strength at its highest," said Austin.