Despite challenging economic conditions, for the first time in recent memory, the City of Nogales earned a top rate among municipalities in Arizona on its bonding capability.

On Thursday, Sept. 3, the city garnered a “AA” rating by the national credit rating agency Standard & Poor’s for its upcoming 2009 Municipal Development Authority Revenue Bonds.

“This is a tremendous increase from the Baa2 bond rating that the city earned from Moody’s in 2006,” said City Manager Jaime Fontes.

According to a summary by Standard & Poor’s, the rating is “long-term with a stable outlook” for the city’s $13.53 million in bonds.

The summary said the rating reflects the city’s very strong coverage of maximum annual debt service of six times the amount owed in 2009; a strong sales-tax base, per capita retail sales, and historical trends supported by the city’s role as the county and regional commercial retail center; and being one of the busiest U.S.-Mexico border crossings and the largest port of entry in the state, with a combined regional population of more than 450,000 when including Nogales, Sonora.

The report

The report also noted some offsets to these strengths, including the fact that just 10 sales-tax-generating businesses represent an estimated 65 percent of the revenues with the top sales-tax producer, a local big-box store, representing 33 percent on its own. Also, the city relies on Mexican visitors to help generate about 60 percent of the sales tax and who have diminished in the softening economy.

“This is a great accomplishment for Nogales and our citizens,” said Mayor Octavio Garcia-Von Borstel regarding the rating “This … reflects that the city is very well-managed and has excellent financial policies in place.

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“This upgrade in the city’s financial rating is even more impressive because it has occurred during some of the most difficult financial times our nation has ever faced,” he said. “It says clearly, that … administration has done an effective job of utilizing taxpayer dollars. This rating puts Nogales into a class that very few other cities in Arizona have reached,” the mayor said.

The city manager, staff and consultants presented economic information to Standard & Poor’s representatives on Wednesday, Aug. 19. The presentation addressed the topics of management, finances, local economy, policies, and long-range planning.

Councilman Nubar Hanessian, who has been critical of the finance department particularly in past administrations, said, “Thank God we have qualified people in there.”

He gave particular kudos to Finance Director Chuck Wilson and Terry Ramirez, acting revenue director for the work they have accomplished during this administration. “These people are professionals and can present well,” Hanessian said.

Standard & Poor’s is one of the largest national credit-rating agencies. It provides ratings on the city’s ability to pay debt service from a defined revenue stream. This, in turn, can affect the growth and functioning of a city such as Nogales.

Debt

Almost every city that incurs debt has a "bond rating" bond rating, Fontes explained. It determines the amount of interest the municipality has to pay on borrowed money. The better the rating, the less a city has to pay. “This can translate into savings that can amount to tens of thousands of dollars on a single bond issuance,” he said.

“We truly appreciate Standard and Poor’s for recognizing our efforts during these tough economic times. Many communities are having difficulty just making ends meet. This new rating will help us in our continuing efforts to properly grow and develop this fine city,” Fontes said.

J.B. Manson, chairman of the Greater Nogales Santa Cruz County Port Authority said, "I see this as a reflection of the focused effort by the city but also the partnership with the private sector to make our community better. This sends a message to companies and investors that Nogales is a great place to invest and grow your business in the long run."

Terry Maas, a managing director with the city’s bond underwriting firm Stone & Youngberg, said, “The mayor, city council the city manager and staff should be congratulated on this significant accomplishment. In particular, the hard work put in by city’s management and finance staffs was a major factor in getting Nogales’ story told.

“The expansion project at the Mariposa Port of Entry will enable this financial stability to continue far into the future,” Maas said.

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