Dear Editor,
Recently, The Iola Register reported a member or members of the Iola City Council were “upset” and embarrassed by Iola receiving a BBB bond rating. Additionally, another article reported we were the only city in Kansas with a BBB rating. The article also seemed to imply some council members insinuated the BBB rating was due to past sub-optimal city financial practices.
A simple phone call or inquiry to Bill Wolf, Jim Gilpin or other knowledgeable financial professionals would have probably been useful and have noted that a BBB rating for Iola is good and that expecting an AAA is not realistic. Iola was not downgraded; the United States government was! Iola has not been rated for years because Iola has not issued bonds.
Bond buyers are generally conservative investors and want the safety of municipal backing and the “tax-free” status provided by municipal bonds. Bond buyers use a third party (Standard and Poor’s) among others to rate the ability of a city to repay the bond (it is a large I.O.U.) over 20 to 30 years. Iola’s long-term rating is BBB, our short-term rating is A2. Sound and stable.
Bond buyers and rating agencies generally evaluate several areas, including:
1) Has the city issued and paid bonds over the past 10 years?
2) Is the revenue source diverse and stable? Is there a balance of revenue sources?
3) Is the housing market expanding and providing a sound property tax base?
4) Does the city adhere to the protocols of the GASB? (Government Accounting Standards Board)
IOLA’S ANSWERS to the questions are:
1) No.
2) No — Iola is reliant upon utility revenue and sales taxes — both are highly concentrated. The utility fund is dominated by Gates and Russell Stover. If they sneeze, Iola will catch pneumonia. Our sales taxes are driven by consumers buying cars and shopping at Walmart — very concentrated and subject to recession.
3) No — our housing market is not expanding thus providing limited revenue increase opportunities from property taxes. If Iola sustains a major decrease in No. 2, property taxes would have to be raised dramatically — not a good idea. Plus, much of our housing stock is not considered prime (as noted by Donna Houser) thus limiting organic revenue growth.
4) No — several years ago the previous city administrator recommended the purchase and implementation of software and other procedures to become GASB compliant. The then commission rejected her plan as too costly, “and besides we do not need that level of detail as we are not issuing bonds.” The facts seem to point to excellent financial stewardship with limited resources. Thus, the Iola accounting system is a combination of paper, ledgers and Excel. Apparently it is not a plot to hide key data or intentionally use old methods but rather a mandate from previously elected officials trying to save on expenses.
Since Iola would answer “no” to each of the basic questions it would be highly unlikely we would merit an AAA rating. BBB is in fact very good. BBB is not embarrassing.
