City Receives AA+ Bond Rating

Communications Director

Kristin Farley
(865) 215-2589

400 Main St., Room 691
Knoxville, TN 37902

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City Receives AA+ Bond Rating

Posted: 01/15/2009
The Fitch Rating Service announced today that it is affirming the City of Knoxville's AA+ bond rating based on the city's continued strong financial performance in the midst of the nation's worst economic crisis in decades.

Knoxville has reported operating surpluses during each of the past five years and has experienced a steadily growing tax base over the same period.

The City of Knoxville has not had a property tax increase since 2004 and does not anticipate one in the near future. 
"The 'AA+' rating reflects Knoxville's diverse economy, strong reserve levels, and sound financial management," Fitch reported in a release today. "The city's unreserved general fund balance has grown by $30 million since fiscal 2004 to $48.2 million - officials expect at least break - even operations in the current fiscal year, despite some weakness in local option sales tax receipts; property tax receipts are reportedly strong." 
"Fitch believes the city's fund balance policy, which requires a three-month operating reserve, provides it with ample financial flexibility to weather the economic recession." 
"We are very pleased to retain the AA+ bond rating from Fitch. This rating, which is the highest ever received by the City of Knoxville, reflects the administration and City Council's commitment to disciplined budgeting and management practices," said Mayor Bill Haslam. "Obviously the recent layoffs and closings in the Knoxville area show that we must be very cautious as we look forward to next year." 
Fitch is one of the three major bond rating agencies that provide information to investors. The other two are Standard & Poor's and Moody's.

The AA+ rating means that the city will be able to continue to borrow money at a lower interest rate than municipalities with even an AA rating.

Fitch's ratings are arranged on a scale from "AAA" (the best rating) to "D" (the worst) with several categories for each letter in between, for example AA+, AA, A, A-, BBB+, etc. 
The report states that Knoxville is the economic center of northeastern Tennessee and that the area has a diversified employment base stabilized by the presence of a large government sector featuring the University of Tennessee, the Tennessee Valley Authority and Oak Ridge National Laboratory.

It notes that the city has not escaped being buffeted by the current economic climate pointing out that its unemployment rate is rising signaling some weakness in the economy here.

However, the Fitch report also states, "several large employers have recently announced layoffs, but the city has been able to attract others." 
The release concludes that the city's overall debt levels are moderate and "Fitch believes the city's ample financial reserves somewhat mitigate the risks associated with a shifting interest rate environment."