The financial rating agency of Standard and Poor’s (S&P) has
upgraded the City of Royal Oak’s general obligation bond rating from AA to AA+,
citing Royal Oak’s "very strong financial management" and the city's
low net direct debt.
“We consider Royal Oak's economy to be strong, with access to the broad and diverse economy of Detroit,” says S&P in its rationale, adding, "In our view, the city has per capita incomes that we consider very strong, reflective of the ability of some residents accessing jobs in neighboring areas."
According to the letter to Royal Oak officials from S&P, the new rating was based on six factors:
- Strong economy
- Very strong budgetary flexibility, with 2013 audited reserves at 27 percent of general fund expenditures
- Adequate budgetary performance
- Very strong liquidity, providing very strong cash levels to cover both debt service and expenditures
- Very strong management conditions, with strong financial policies
- Strong debt and contingent liability position, driven mostly by the town’s low net direct debt. However, a negative adjustment was given by S&P for the size of Royal Oak's pension obligation compared to total governmental expenditures, as well as the lack of an approved plan by the Royal Oak City Commission to begin to fully fund the annual required benefit contributions.
Read the attached report from S&P for the complete analysis.