Why is Austin's credit rating improving?

APN HAPPY HOUR: Please come hang out at the Mean Eyed Cat on W. 5th St next Wednesday, Sept. 24, from 5-7 pm!! I would love to see you.

It's a little disorienting, amidst all of the news of the city's dire fiscal situation, to learn that its credit rating has actually improved. Alas, that's exactly what Kimberly Olivares, director of the Financial Services Dept., reports in a memo from two weeks ago that somehow escaped my attention:

Fitch Ratings has upgraded the City of Austin’s credit rating to ‘AAA’, the highest rating available. This upgrade applies both to the City’s overall Issuer Default Rating (IDR) and to an $810 million bond issuance scheduled for early September. This milestone reflects the City’s strong fiscal management, long-term planning, and recent pension reforms.

What explains the upgrade?

A big factor is the state-approved reforms to the firefighter pension plan (I wrote more about it in this newsletter). The change means that their pension will now be calculated by a multiplier of 3.0 x years of service, compared to 3.3 x years of service. So young firefighters will have to work 33 years to get a pension equal to 100% of their pay, rather than 30 years.

(Fitch had previously downgraded the city's rating to AA in 2021 after voters overwhelmingly approved a low-profile initiative that committed the city to binding arbitration with the firefighters union in contract disputes. Moody's downgraded Austin to Aa1 in 2020, citing the city's pension liabilities.)

Fitch also highlighted the city's "strong financial reserves," and its financial reserve policy.