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County maintains triple-A rating in two areas, receives partial downgrade in another due to change in state legislation

Johnson County received top ratings in its latest credit assessment by the nation’s bond-rating agencies again this year, with one exception caused by changes in state legislation.           

The County’s General Obligation (GO) bonds received the top AAA rating by Moody’s Investor Services, Standard & Poor’s (S&P) Global Ratings and Fitch Ratings.

The County’s Library Public Building Commission (PBC) bonds were rated by Moody’s and S&P and received AAAs from both.           

The final set of bonds, County PBC, was also rated AAA by Moody’s, but received the next lower rating by S&P in light of the property tax lid imposed in 2015 and 2016 by the Kansas Legislature.           

“In our first PBC debt issuance subject to the tax lid, S&P has notched us down to AA+,” said Scott Neufeld, director of the Department of Budget and Financial Planning. All three bond issues were rated with “stable” outlooks across the board.         

According to Neufeld, the lower bond-rating reflected a change in S&P’s assessment due to the tax lid legislation.           

Johnson County wasn’t the first Kansas jurisdiction in 2017 to experience a dip in its bond ratings from the impact of the tax lid. Earlier this year, Kansas cities Andover and Stockton both saw their PBC debt issuances similarly notched down by S&P.          

Johnson County received the latest bond ratings from Moody’s, S&P and Fitch Ratings on the eve of authorizing and selling three separate bond series, totaling more than $57.6 million, on Thursday. The process involved two types of bonds normally issued by Johnson County Government.  General Obligation, or GO bonds, are authorized by the Johnson County Board of Commissioners (BOCC). Lease purchase revenue bonds are approved by BOCC and then authorized by the board in its role as the county’s Public Building Commission (PBC).

 “We typically request ratings from all three rating agencies for our GO debt and from two (Moody’s and S&P) for the PBC (bonds),” Neufeld said.           

The latest ratings traditionally are announced by the bond-rating agencies a few days prior to the actual authorization and sale of bonds after evaluation by the firm of a jurisdiction’s economy, finances, debt burden, management practices and financial policies.

The ratings help determine the ease with which the county can borrow money by issuing bonds and the interest rates it pays. The better the bond rating, the better terms it gets on its money.           

During its morning BOCC meeting Thursday, the commission authorized the issuance, sale and delivery of $15.8 million in GO Internal Improvement Bonds, Series 2017A, which received an AAA score from all three bond-rating agencies, the ideal “triple-triple.”           

Funding from the GO bonds will be used to finance 13 wastewater capital projects, costing almost $16 million, and $1.1 million for equipment and construction of a fire and emergency medical station alerting system for the county’s Emergency Communications Center.   

The BOCC also approved two bond resolutions for final funding authorization by the PBC including:

  • $15 million in lease purchase revenue bonds, PBC Series 2017A, for designing, constructing, furnishing and equipping a new Johnson County Library at Lenexa City Center, and
  • $23.1 million in lease purchase revenue improvement and refunding bonds, PBC Series 2017B, for improvements to the county’s adult detention centers. Funds will be used to upgrade the elevator system at the downtown Olathe facility, to replace the roof at the New Century AirCenter detention facility and for other improvements to both detention centers.
  • Bond revenue from the 2017B series will also be used to achieve interest savings, estimated at $1.36 million, through “crossover refunding” of county bonds issued in 2011, resulting in less total debt service over the remaining life of the bonds due to lower interest expense.

All three ratings agencies viewed the county’s financial outlook as “stable” with a moderate debt burden that remains manageable.  Despite the lower bond rating, S&P’s assessment also did not raise any red flags, citing Johnson County’s “very strong economy” and Johnson County Government’s overall financial portfolio, including:

  • Very strong management with “strong” financial policies and practices;
  • Strong budgetary performance with operating surpluses in the general fund;
  • Very strong budgetary flexibility with an available fund balance in fiscal 2016 of 23 percent of operating expenditures; and,
  • Very strong debt and contingent liability position with debt service carrying charges at less than 1 percent of expenditures, net direct debt that is almost 41 percent of total governmental fund revenue and rapid amortization with nearly 70 percent of debt scheduled to be retired in 10 years.

The AA+ bond rating by S&P does not yet affect pending Johnson County projects, including construction of a new courthouse and medical examiner/coroner facility, since the projects are still in the planning stages with debt funding authorization anticipated in 2018 at the earliest.