Seven months after Fitch Ratings downgraded the City of San Antonio’s bond rating from AAA to AA+ in light of growing uncertainty of the City’s finances, San Antonio’s credit ratings by the three major rating agencies remain the same.

The City announced Wednesday that Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings have affirmed the City’s ratings of AAA, AAA, and AA+, respectively. City Manager Erik Walsh said the determinations come despite rising concern about the implications of State legislation passed this year as well as San Antonio’s ongoing contract dispute with the San Antonio Professional Firefighters Association.

“There was a level of uncertainty that the rating agencies all noted, and that deals with Proposition C and the arbitration that the fire union has initiated,” Walsh said Wednesday at a news conference. “But we’re working and actively managing through that.”

Recent bills enacted by the Legislature also pose increasing challenges for the City, namely the elimination of fees paid by cable and telecommunications companies and the anticipated effect of Senate Bill 2, which imposed caps that can affect the amount of property tax revenue cities can receive.

Fitch’s December downgrade of San Antonio’s bond rating came one month after voters approved Proposition C, which gave the fire union unilateral authority to declare an impasse during contract negotiations and force the City into binding arbitration. The rating agency cited the proposition’s passage as its primary reason for downgrading San Antonio’s bond rating.

The fire union this month invoked Proposition C after months of negotiations and mediation. The City has selected local attorney Phil Pfeiffer to represent it during arbitration proceedings, and the fire union chose Portland, Oregon, labor lawyer Michael Tedesco. The two parties must now agree on a third-party arbitrator before they begin arbitration.

A City spokesperson on Wednesday said the two sides have informally agreed to extend the 10-day timeline for selecting a third party. 

It is the first time a public safety contract for a major Texas city will be the product of arbitration, the City has said.

Although San Antonio firefighters and emergency medical technicians have received annual salary increases since the September 2014 expiration of their previous contract, the department’s salary schedule remains the same as five years ago. A 10-year “evergreen clause” keeps most terms of the previous contract in place.

Although Standard & Poor’s upheld its AAA rating of the City’s credit, the agency noted in a report Tuesday that it will be keeping tabs on the City’s collective-bargaining agreement negotiations with the fire union and how that affects its fiscal health moving forward.

“We believe that any outcome that imposes additional costs on the city could have significant ramifications for its budget and its financial position,” the report states. “We will monitor the outcome of the arbitration and will assess the impact on the city’s finances as needed.”

The higher a city’s bond rating, the lower the interest rates it pays on debt, such as bond issues that help fund upgrades to City infrastructure, including road enhancements and new facilities.

The agencies issue bond ratings ahead of any sale of government bonds. The last ratings came in December as the City was getting set to issue General Improvement Refunding Bonds.

The City will next issue debt in August when it expects to sell approximately $462 million in general obligation bonds, certificates of obligation and tax notes. It will be the third issuance related to a voter-approved 2017-2022 bond program.

Mayor Ron Nirenberg said Wednesday the rating affirmation comes as a relief to the City. He said especially in light of heightening accounting standards for local governments and the changing fiscal environment, “there are always some nerves” when agencies issue ratings. But the reaffirmation of the City’s ratings supports San Antonio’s stewardship of public resources, he said.

“The rating agencies always come in with concerns about the environment fiscally, especially in Texas, as legislators show a relative disregard for cities’ ability to maintain infrastructure and services,” Nirenberg said. “But it shows once again that San Antonio is the gold standard in terms of managing through challenges.”

JJ Velasquez

JJ Velasquez is the San Antonio Report's audience engagement editor.