S&P affirms Salinas issuer rating but assigns negative outlook, cites sewer fund controls

Finance Director Selena Andrews told the Finance Committee on Aug. 12 that S&P Global Ratings completed a periodic review and affirmed the city’s issuer credit rating (ICR) at double‑A minus (AA‑) and affirmed outstanding lease revenue bonds at A+, but revised the outlook to negative.

“S and P conducted a periodic review of the city's outstanding leases, lease revenue bonds and affirmed our ICR at double A minus and outstanding lease revenue bonds at A plus, and revised the outlook to negative due to weaker internal controls and volatility exposure,” Andrews said.

Andrews told the committee the negative outlook reflects S&P’s concern about internal controls and the sanitary sewer enterprise fund. She said the city has not adjusted sewer rates in more than 10 years and past emergency repairs—specifically unplanned pump station repairs—had depleted the sewer fund. S&P flagged those conditions alongside a multi‑year forecast that projects operating drawdowns and the possible effect of a major tax measure sunset on sales tax revenues.

Andrews said S&P could lower ratings if the city cannot adjust rates or address budget pressures in enterprise funds, or if Measure G sales tax revenue were to be lost or reduced. Conversely, Andrews said S&P could raise the ratings if the city sustained structural balance and reduced general‑fund exposure.

Committee members asked for clarification about the specific internal controls S&P found weak; Andrews identified oversight of the sewer fund and said finance staff are reviewing controls across all funds and will return with corrective steps. City staff also noted that routine financial audits focus on whether the city follows its own rules and that additional internal policy and reserve‑setting work is underway to make such issues more visible to council in the future.