Moody’s rating, which is down two ratings, means the city will likely have to pay higher interest rates, city administrator Doug Maxeiner said.
“If we go to a bank and ask to borrow money to buy a new car, they look at our credit rating and base the cost of our borrowing on our creditworthiness,” Maxeiner said. “The bond rating is very similar to this. “
Maxeiner said the rating would not affect the decision of city staff to recommend the city to issue the bonds, and said that in fact the weaknesses highlighted in the report, including the high obligation under the title pensions, reinforced the city’s strategy in terms of pension obligations.
“It’s still a valid strategy in our opinion,” said Maxeiner. “And in some ways it kind of strengthens our strategy, which means we need to take additional steps to stabilize those costs in the long run, to be able to address some of the positions they point out, weaknesses for. we.”
In 2015, the Government Finance Officers Association cautioned against using bonds to pay off pension liabilities, warning of the risks of additional debt that depends on market performance.
Among the concerns expressed, Maxeiner said previously, the one regarding East Moline is the risk that investments do not earn more than the interest rate over bonds, a risk the city takes each year with pension contributions. The biggest risk for East Moline, according to Maxeiner, is allowing pension charges to divert more tax revenue that could go to city services like street repairs.