Professor: S&P rating good for city

Agency gives Texas side a high assessment after tour, which could mean big savings

Sound city government finances are keeping Texarkana, Texas’ municipal bond rating steady despite a weak local economy, Standard & Poors reported after a recent review.

The influential agency gave an AA-rating to the $14.4 million in bonds the City Council approved selling Monday, and it kept existing bonds at AA-, as well.

That the ratings stayed the same is “good news,” said Richard Parsons, assistant professor of economics and finance at Texas A&M UniversityTexarkana.

“It means they’re telling us we’re being well-managed, well-controlled, and there’s reason to not worry about the things the city has done recently financially,” he said.

A lowered rating, however, might have been expensive for city taxpayers.

“A bond rating is an assessment of the credit risk that a person who buys a bond carries when they buy that bond. You can think of it a little bit like a credit score for an individual.

“If the rating is lower, the city will have to pay more for any new debt it issues. The old debt it issues is

already locked in, so it won’t affect debt that’s outstanding. It will for the people that hold the bonds, the investors. If the city is downgraded, then their bonds are worth less, but the city and the citizens of the city will not be impacted on outstanding debt.

“Any new debt that’s issued, they would have to pay a higher interest rate, and it could be substantial. It could mean that instead of paying 2 percent, you pay 3 percent, and that’s a lot more, a 50 percent increase,” Parsons said.

The report came after city officials took S&P representatives on a tour of Texarkana on March 6. It was a new experience for City Manager John Whitson, though in his career he has participated in about a dozen rating reviews.

“This is the first time I’ve had them actually come and visit the city. We met them at lunch out at Silver Star, and from there went on the tour, then ended up here (at City Hall) and went through discussion with them here.

“It’s good that we are being looked at by the rating agencies, and they’re not coming in expecting the worst. They actually come in and look to see, ‘How can we make sure we’re considering everything that’s positive about the community?’ And that’s why they visit, to actually see the community, not just look at data,” Whitson said.

The report called Texarkana’s economy “weak,” noting market value per capita of $67,059 and projected per capita buying income at 79.3 percent of the national level. By contrast, it cited good financial indicators for city government: strong management, strong budgetary performance, very strong budgetary flexibility, very strong liquidity and a strong institutional framework score.

There is little City Hall can do to improve the local economy overall, but continuing to clean up the city and demolish derelict buildings is a good start toward higher resident incomes and, in turn, higher municipal bond ratings, Whitson said.

“When that happens, I think that property values are going to go up. When property values go up, people are going to think, ‘I better get a better job. Gotta do something different.’ So I’m hopeful what we’re doing to make the city look better, and maybe function a little better, will also drive and motivate people to seek out better employment.

“I think it’s a journey. I don’t know how long of a journey it is. I suspect it’s longer than I’d like it to be, but we have to be patient,” he said.