EASTON, Pa — Easton's economic outlook now is "stable," according to S&P Global's latest assessment of the city.
That's an upgrade from the city's previous outlook rank at “negative.” Easton received an "A" credit rating in the report distributed this month.
S&P Global, based in New York, is a leading provider of financial information and analytics for the financial services industry.
S&P Global cited Easton’s recent debt restructuring, healthy local revenue environment and prudent budget management as reasons behind the improved rating.
- S&P Global says in a new report that Easton's economic outlook is 'stable' — up from 'negative'
- Easton received an "A" credit rating in the report distributed this month
- The rating will be helpful if Easton looks to borrow money
The report also noted that Easton saw an “improved liquidity position” following the city’s actions to restructure its debt in 2020.
“The restructuring played a role in officials' plans to navigate out of risky development agreements — exemplified through the sale of property that once entangled the city with contingent risks — and onto more stable financial footing," the report said.
While the S&P report noted that Easton has a “weak economy,” based on market value per capita, projected effective buying income and unemployment rate, among other factors, it also recognized the positive impact of ongoing development activity on city revenue.
Easton currently has a 5.9% unemployment rate, according to the report, while the national average is 3.5% as of December 2022, according to the U.S. Bureau of Labor Statistics.
Another area of weakness for the city of Easton is its largely unfunded pensions. For example, the Easton police pension plan is 63.4% funded and the fire pension plan was 79.5% funded in 2020. The Easton officers and employees pension plan is 64.46% funded.
The report did note that Easton’s market value has increased to about $1.3 billion in 2021, seeing steady and moderate growth.
It also cited residential and commercial development in the city that is projected to create 700 new jobs and increase housing prospects for prospective residents.
The $20.7 million dollars Easton got from the American Rescue Plan Act has helped the city replace lost revenue from the COVID-19 pandemic, according to S&P Global. The report indicated those funds have been stabilizing for the city and that future developments will increase tax revenue.
S&P Global found that a strong outlook for Easton's future.
What is the Debt Rating?
Erin Cottle, an assistant professor of economics at Lafayette College, has rated businesses for their credit ratings. She said a debt rating is an indicator of a city or business’ ability to pay back loans that may need to be taken out.
“It's good news for the city to have it going up because it’s less expensive for the city to borrow.”Erin Cottle, assistant professor of economics at Lafayette College
“From the city’s perspective, having a higher rating is better because it makes the cost of borrowing lower,” Cottle said. “It's good news for the city to have it going up because it’s less expensive for the city to borrow.”
However, Cottle said credit ratings are contingent on not having much debt. So if a city takes on extra debt, it could decrease the debt rating.
On the other hand, if a city pays off a current loan and, with a good debt rating, chooses to take out another loan, it could be easier for the city to get the new loan.
One thing to note, Cottle said, is that interest rates can affect whether cities or businesses take out loans at all.
Cottle said the low interest rates from 2012 to 2014 may have encouraged borrowers to take out bonds, since lower interest rates didn’t affect them as much.
Now, with higher interest rates, Cottle said the debt rating matters a bit more. Even with a higher debt rating, taking out loans is costly.
“A strategy now would be to raise your credit rating, so if you need to borrow in the future, it’s not as expensive,” Cottle said.
Cottle said cities tend to be a bit more conservative and might not take out loans the way a business would. However, debt ratings can still affect borrowing decisions.
