By Dustin Gardiner | The Republic
Phoenix’s perfect credit rating was downgraded Friday, a blow to city leaders who had pointed to the top rating as evidence of its sound fiscal management compared with other large U.S. cities.
Standard and Poor’s, one of the world’s largest credit-rating agencies, changed Phoenix’s general obligation bonds rating from AAA to AA+, citing concerns about the overall performance of the local economy and its level of debt and financial liabilities.
Similar to a person’s credit score, a city’s bond rating affects its ability to borrow money and the interest rate it pays. Phoenix’s lower rating could mean it will have to pay more in interest to issue bonds in the future.
Phoenix officials said the downgrade is largely the result of a change in S&P’s rating criteria this year, placing a higher emphasis on local economic conditions. In particular, Phoenix’s property values, which plummeted during the housing-market crash, depressed its rating, they said.
“A lot of what this is about is not within our control,” City Manager Ed Zuercher said. “What property values do, we don’t have direct control over that. But the things that we do have direct control over, we feel good about.”
Although S&P noted Phoenix has managed its budget “proactively” in recent years and has high levels of available cash, the agency said the city’s amount of debt and financial liabilities is weak. . .
. . .Vice Mayor Bill Gates said Phoenix might have maintained its AAA rating if S&P used its old methodology, noting that the new rating includes assessed property valuations from roughly two years ago. Gates said he’s concerned residents and outsiders will misinterpret the rating change.
But Gates said the biggest takeaway is that the council needs to do more to attract jobs and development, which will in turn increase property values and its economic outlook.
“Apple going to Mesa was a wake-up call. This now — today — was a wake-up call,” Gates said. “We’ve got to get focused.”