By Kim Steele
Killeen Daily Herald

HARKER HEIGHTS — The city received a pleasant surprise when its bond rating was unexpectedly upgraded by the Standard & Poor’s Rating Services.

Harker Heights, which was rated an AA- since August 2009, had its rating increased to AA last week. The highest rating is AAA+.

“I’m very surprised and pleased, and it’s wonderful news,” said Alberta Barrett, the city’s finance director. “The upgrade reflects the commitment and dedication of the city to maintaining strong financial policies and being very conservative — even frugal — with taxpayers’ money. This will benefit the city in future endeavors.”

The effects of the upgrade came as early as Tuesday, when the council voted to refinance $6.9 million in outstanding bonds from 1999 and 2003. Garry Kimball, the city’s Austin-based financial adviser, said the refinancing dropped the interest rate on the bonds from 4.75 percent to 1.77 percent, saving the city about $1 million in interest. Of the $1 million, $100,000 of savings was attributed to the upgrade.

“This is, in a sense, the gift that keeps giving,” he said. “Every time the city goes to the bond market, the upgrade translates into a lower cost of financing. We get a better interest rate on our bonds. And the cheaper the city can finance its projects, the easier it will be to maintain the tax rate instead of increasing it.”

Other rate increases came in September 2008, December 2005 and March 1990.

Kimball said city staff presented relevant financial information earlier to Standard & Poor’s analysts, who studied it and returned a determination. Kimball said there was only a 50 percent chance the upgrade would occur because of the national economic environment.

Kimball said the city’s rating at any point reflects its ability to pay its bond payments, as well as the council’s stability and its willingness to pay bond payments by raising the tax or utility rates, if necessary.

A higher rating means the city is less of a financial risk, which decreases its interest rates.

A credit rating is Standard & Poor’s opinion on the general creditworthiness of an entity.

Analysts told Kimball the upgrade was due to the city’s consistently conservative management of its finances, as well as the amount of money held in reserve in various budget funds. Other reasons were the improving wealth level of the city’s population and the continuing economic development in Harker Heights.