NORFOLK, VA – S&P Global (“S&P”) affirmed Norfolk’s “AAA” General Obligation credit rating, which is the strongest possible rating from S&P, on Wednesday. This rating comes in advance of the city’s sale of General Obligation Bonds in mid-June, which will capitalize on current market conditions to increase the funding of the already healthy Norfolk Employees’ Retirement System. The sale is expected to provide a significant financial benefit by reducing future payments on Norfolk’s expensive unfunded accrued liability.
S&P cited the financial benefits of the unfunded pension liability management, the existing healthy pension funded ratio, the city’s history of fully funding the retirement systems' annual actuarially determined contributions and the benefits that the establishment of the Section 115 Trust are expected to achieve in mitigating possible volatility in pension contributions as reasons for the AAA rating.
Additionally, S&P highlighted Norfolk’s growing economy and substantial large-scale developments recently completed and underway, while recognizing the strength of the region and the local stabilizing institutional influences, including the military, shipbuilding and educational centers of the local economy. The rating also reflects strong management, very strong formalized financial policies and practices, and the city’s demonstrated commitment to structurally balanced operations despite budgetary pressure caused by the pandemic.
S&P noted Norfolk has exceptional access to external liquidity, if necessary, highlighting their ability to access the capital markets, strong management of the City’s cash and investments, and the foresight to expand the scope of the City’s line of credit to include funding of operating expenses caused by a significant emergency event. City management believes Norfolk may be the first in the country to proactively position access to operating funds through a line of credit during a significant event – further strengthening the city’s financial resiliency. While S&P did note the city’s weak debt and contingent liability, they added that even with the expected expansion of Norfolk’s debt metrics, the city is still expected to stay within its debt-affordability measures and within levels considered to be moderate.
In addition to the previous metrics, S&P also stated that the city has incorporated environmental, social and governance factors into its practices and long-term financial and capital planning. Some of the factors highlighted include the Ohio Creek Project, the Citywide Coastal Storm Risk Management Study and Norfolk’s proactive efforts to invest in resilience improvements through various partnerships with the Federal and State governments, the city’s own CIP, and through dedicated funding from the resilience penny. Additionally, S&P cited that Norfolk is committed to improving the economic power of its residents with the largest focus on the St. Paul’s Area, which will continue to strengthen the city’s economy.
The strongest possible credit rating from S&P will continue to support the city in its effort to borrow at the lowest interest cost. S&P recognizes the strength of Norfolk’s financial management practices across the organization. It is a true testament to the wisdom of City Council and to management’s careful approach to financial management that Norfolk maintained its top credit rating during what was likely the most challenging year in recent memory.