A recent report by Fitch Ratings affirmed the City of Modesto’s General Fund bond rating at ‘AA-“ and its General Fun Lease Revenue Bonds (LRB) at ‘A+‘ with a Stable outlook.
Fitch cited the reasons for affirming the bond rating was due to the City's low debt burden, solid expenditure control and sound financial management practices within a challenging revenue environment. Fitch recognized the challenging revenue environment facing the City but stated recent trends could suggest acceleration in revenue growth. Trends show growth significantly above the rate of inflation and closer to 4%.
The report’s Operating Performance Indicator Assessment stated that the City’s long-term liability burden is low relative to the economic resource base. Overall debt and net pension liabilities equal just 6.3% of personal income.
The City of Modesto has been a very sparing user of debt and has rebuilt a solid financial cushion that Fitch believes is sufficient to withstand typical cyclical revenue stresses with only manageable cuts to core services. Fitch noted that the City’s budget management in times of recovery has been strong and that the City uses generally conservative budgeting practices. The firm also noted that the City has rebuilt some of its financial cushion in recent years.
According to Fitch, the City's main credit weakness is its very limited ability to adjust revenues under California's restrictive Proposition 13 tax limitations. The City may not raise its operating property tax levy, and it must seek a vote of the people to raise other taxes.
Fitch Group is an internationally recognized bond rating agency in the financial marketplace and a global leader in financial information services with operations in more than 30 countries.