A strong financial position, including a low debt profile and a $3 million reserve fund were among the reasons cited by Moody’s Investment Services, a New York-based provider of credit ratings and risk analysis, for giving Vicksburg’s $9.8 million bond issue an A2 rating, city officials learned.

The Board of Mayor and Aldermen discussed the rating Monday. The city is issuing the bonds to finance the first part of an $18 million capital improvements program to repave and repair roads, improve city buildings and recreation facilities and infrastructure. The city currently has an overall A2 rating from Moody’s, which was awarded in 2013.

“It’s a strong rating,” city accounting director Doug Whittington said. “The main benefit for the city is the better interest rate than if we had a lower rating.

“For the taxpayer, it means we’re going to pay less interest over the term of the bond, therefore, the improvements will cost less and there’s that much less chance or risk of raising taxes. We won’t be paying as much (on the loan).”

“We’re borrowing the money at the least cost to the taxpayer,” Mayor George Flaggs Jr. said. “It’s like me going to the bank to borrow money with a good credit rating.”

He said the city hopes to have the bonds sold by the end of July.

“We needed that money yesterday,” he said.

Bond ratings are used to determine a borrower’s ability to pay off a loan or bond issue. The ratings go from AAA to C, with AAA being the highest and best rating and C the lowest. Moody’s rating service also has a “WR” designation, which means the rating has been withdrawn.

An A2 rating means the city has more than a sufficient financial ability to pay off the loan.

When cities file for a bond rating, they are required to provide continuous financial information to the rating service, such as audit reports.

Bond rating services use the information to determine if the municipality will keep its rating. Most bond issues are for 20 years. The service wants to know that the city will be able to continue paying the debt service. If the city fails to provide continuous and timely information, it can have its bond rating reduced or removed.

If a city loses its bond rating, it must reapply and risk getting a lower bond rating than it previously had.

That happened to Vicksburg in 2012, when Moody’s pulled the city’s A bond rating for failure to provide current audit reports. The rating was restored in late 2013, after the audit reports were brought up to date.

According to the report accompanying the A2 rating, Moody’s cited the city’s “demonstrated ability to building reserves, growing general fund balance as a percent of revenues from 29 percent ($8.9 million) in fiscal 2008 to 49.7 percent ($14.6 million) in fiscal 2013.”

The city also has a low debt profile, which has improved its financial position.

While the city’s revenues rely on volatile, or unpredictable, revenue sources such sales tax and gaming, it has reduced its financial risk by following a policy of budgeting to spend only 97 percent of its anticipated revenues for each year, and has adopted a formal fund balance policy to maintain a general fund balance (surplus) above 25 percent of expenses, including its $3 million reserve fund. Flaggs said the city expects to move a 2014 surplus of $500,000 into the reserve fund and expects to put another $500,000 at the close of fiscal 2015, giving the city a $4 million reserve.

He added the Moody’s report “spoke volumes of us being able to come back from a $473,000 deficit (in fiscal 2013) to a $3 million reserve fund.”

The Moody’s report, however, indicated the city has several challenges, such as a high unemployment rate and its reliance on sales tax and gaming revenue to form the bulk of its revenues.

Flaggs believes the city can get a better bond rating if it addresses the challenges outlined by Moody’s.

One step was appointing a budget oversight committee to watch spending by city departments.

“It doesn’t mean somebody’s not doing right, it means we’ve just got more eyes on the money and making certain (expenses are necessary),” he said.

He also wants to hire a tourism and economic development administrator to help develop jobs to ease unemployment, and plans to reduce the city budget’s dependence on shrinking gaming revenues by 25 percent in fiscal 2016. The city’s dependence on gaming was reduced by 18 percent for fiscal 2015. He also commended Aldermen Michael Mayfield and Willis Thompson for working with him on the city’s finances.

“I think if we can continue to govern ourselves and keep the trend going, we can improve our bond rating,” he said. “I won’t rest until we get a better rating for the remaining $9 million.”