For Immediate Release

Contact:          Donald E. Johnson, Director of Finance (248) 246-3030 

Royal Oak bond rating upgraded

            Royal Oak, Mich. - Citing the city’s strong financial management practices, Standard & Poor’s upgraded Royal Oak’s bond rating two levels from AA- to AA+ last week.  The rating was issued in conjunction with the city’s planned $11.8 million capital improvement bond issue which will pay for parking, water & sewer, and motor pool projects.

            Standard and Poor's is the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research and data.  It is probably best known for the “Standard and Poor’s 500,” one of the most commonly used benchmarks for the overall U.S. stock market.

            AA+ represents the firm’s second highest rating.  “Strong bond ratings are particularly important in today’s market,” noted City Manager Tom Hoover.  “In the past, many cities bought bond insurance to get a better rating for an issue.  However, most of the insurers were involved in the sub-prime mortgage market in one way or another and they are no longer able to provide a higher rating through insurance.”

            “This is very good news,” said Mayor James Ellison.  “Better bond ratings mean lower interest cost on our bonds.  We’ll be seeing the benefits of this rating upgrade every time we make an interest payment, for the next twenty years.” 

            “We were concerned the economy and falling housing values would hurt us with the rating agencies” said Royal Oak Finance Director Don Johnson.  “They are very aware of the decline in Taxable Value we will be facing for the next three or four years but they liked how we

 are dealing with it.”

            Standard and Poor’s is the only one of the bond rating agencies that does a separate Financial Management Assessment (FMA).  Royal Oak’s FMA rating was increased from “good” to “strong,” Standard and Poor’s best rating.  That puts Royal Oak in the top ten percent of all governments rated by the firm. 

            “The FMA rating increase is particularly gratifying,” said Johnson.  “The overall bond rating is largely the result of factors we really cannot control.  The FMA rating tells us what they think of the job we’re doing.  However, it is the overall bond rating that really matters to the market.”

            Just three years ago, Royal Oak’s budget called for an operating loss in excess of $5 million and anticipated a further loss of more than $6 million the following year.  Due to massive cutbacks in staffing (Royal Oak has eliminated almost 20% of its employees since 2004) coupled with a systematic cost allocation program, and other efforts, the city has avoided operating deficits for the past two years.  “We thought we had turned it around in 2006-2007, when what was once projected to be a $6.4 million loss was turned into a $118 gain,” noted Johnson.  We finished 2007-2008 in the black and we should do OK this year as well but we will be facing declining taxable value, and declining property taxes for at least three years, starting in 2009.   Oakland County is projecting that taxable values will drop 18.5% in that time period. We will need to continue eliminating positions and cutting services.  I think we’ll need to cut at least another 15%-20% of positions in the next three years.  It could even be more.”

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