Fitch Ratings gave the city of San Luis Obispo an AA+ credit rating on Jan. 27, describing its financial performance as “exceptionally strong.”
The city’s revenue growth is expected to exceed the national pace, Fitch said in an independent assessment, and the city’s financial outlook is stable.
Fitch said SLO has a “robust financial planning and policy framework” and puts forth “consistent efforts to maintain structural budget balance and to address long-term liabilities.” The city quickly rebuilt financial flexibility after the last recession, quickly restoring fund and budget balance after a decline in sales tax revenues, Fitch said.
“With the city council’s leadership and the support of residents who approved the half-cent sales tax, the staff has worked very hard during and after the worst recession since the Great Depression to develop smart priorities, live within our means and create flexibility to react to a future downturn,” City Manager Katie Lichtig said in a news release.
Fitch rates on a scale from AAA to D based on credit profile, economic resource base, revenue framework and long-term liabilities. It highlighted the city’s two lease revenue bonds for the Public Financing Authority of $7.4 million and Capital Improvement Board of $24 million.
The city’s revenue mix, Fitch noted, is dominated by sales taxes, which provided 37 percent of revenues, followed by property taxes at 15 percent, charges for service at 14 percent, transient occupancy taxes at 10 percent and utility users taxes at 8 percent. The city’s main credit weakness is out of its control, Fitch said, in its relative inability to control revenues due to California’s strict tax limitations.
The city benefits from slow, steady population growth and a highly educated workforce. The unemployment rate has dipped below the national average in recent years, Fitch said.
Fitch concluded the currently low-to-moderate long-term liability will grow but remain in the moderate range.
“The city has a strong operating performance, a low-to-moderate long-term liability burden, strong revenue growth prospects and solid expenditure flexibility, offsetting a constrained revenue raising environment,” Fitch said in its assessment.
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