Moody’s Investors Service revised the outlook for Phoenix’s Aa1 general obligation rating on Tuesday to stable from negative, citing “the city's meaningful increases in pension contributions that will likely decrease liabilities over the long-term.”
The rating agency also affirmed its Aa2 rating and stable outlook on the city’s senior and subordinate lien excise tax bonds.
“The stable outlook on the city's (unlimited tax GO) and excise tax bonds reflects the likelihood that continued revenue growth, albeit at a somewhat slower pace, will enable the city to afford rising fixed costs and maintain its current financial position,” Moody’s said in a statement.
The rising cost of pensions was the primary reason the rating agency gave the nation’s fifth largest city a negative outlook in August 2016 as fixed budgetary costs fueled primarily by increasing contributions to retirement plans accounted for 29% of operating revenue in fiscal 2015.
“The city has taken responsible actions to ensure the pension plans are financially stable,” said Joe Jatzkewitz, Phoenix’s assistant finance director/city treasurer, noting that includes maintaining a legal commitment to pay 100% of the actuarially determined contribution to the City of Phoenix Employees Retirement System (COPERS) and Public Safety Personnel Retirement System (PSPRS).
For COPERS, which had an unfunded pension liability of $1.1 billion as of June 30, 2021, Phoenix contributed an additional $70 million in fiscal 2018 and $179 million in fiscal 2021, according to Jatzkewitz.
The city is allocating a portion of its revenue from recreational marijuana sales to reduce the PSPRS unfunded liability, which stood at $3.5 billion at the end of June 2021, he added.
Moody’s said Phoenix’s Aa1 GO rating reflects one of the nation’s fastest growing economies, a very large tax base, improving though still modest income levels, and the city's healthy financial position.
“While the regional economy was affected by the coronavirus outbreak, Phoenix's economic and tax base growth outperformed other parts of the U.S.,” the Moody’s statement said. “Finances remain in a healthy position, supported by prudent budget management and revenue growth driven by the city's strong economy.”
The rating outlook revision came ahead of the city’s upcoming sale of $143.2 million of GO refunding bonds.
Phoenix is rated AA-plus by S&P Global Ratings and AAA by Fitch Ratings, both with stable outlooks.
