Banning's Outlook 'Remains Negative,' City Says Following Credit Agency's Report

BANNING, CA — A major credit rating agency's negative outlook for the City of Banning bonds this month, reflects the city's struggle to stabilize finances amid an ongoing Banning Electric Utility "double-billing" investigation.

S&P Global Ratings reviewed two series of revenue bonds issued on behalf of the City of Banning and kept its existing credit rating the same, but the outlook on both ratings "remains negative," the city announced on Wednesday.

The agency rated the city's Water Enterprise Refunding Revenue Bonds a "BBB" and the Electric System Revenue Bonds a "B." S&P Global Ratings uses a hierarchy scale from "AAA" to "D" to rank the credit quality and default risk of bonds.

"BBB" is a grade that indicates adequate capacity, but vulnerability to adverse economic changes. A "B" grade indicates more vulnerability to adverse economic conditions, however its financial commitments have been met.

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S&P affirmed the Standard & Poor's Underlying Rating 'BBB' on water enterprise refunding revenue bonds issued by the Banning Utility Authority, and the Standard & Poor's Underlying Rating 'B' on electric system revenue bonds issued by the Banning Financing Authority in separate reports released Sept. 3. S&P held the Banning's existing rating levels instead of lowering them, note Banning officials.

The city said per S&P, the negative outlooks were attributed to "continued institutional stress and weakness in the City's general government," and that S&P "will monitor the City's progress over the coming year toward structural balance in the General and Electric funds and improved citywide pooled cash balances."

"While S&P's continued negative outlook reflects the real fiscal challenges our city is working through, the affirmation of these ratings shows that the corrective steps we've taken are being recognized," Mayor Richard Royce said in a statement. "Our Council and staff remain committed to the work of restoring Banning's fiscal health — resolving our billing issues, controlling costs, and rebuilding the reserves our residents deserve. There is more work ahead, but we are moving in the right direction."

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City officials said S&P noted that the billing issue that previously affected the city's electric utility was resolved, "while pointing to continued uncertainty over ratepayers' ability to pay outstanding balances and the utility's ability to meet its 1.2x rate covenant in fiscal years 2025 and 2026."

The city said both reports from S&P "identify a path back to a stable outlook: sustained improvement in citywide liquidity, timely billing collections, sufficient rate increases, prudent cost controls, and continued progress resolving weaknesses in internal controls and financial reporting — areas the City has been addressing through its Workout Plan to Fiscal Sustainability and other corrective measures adopted over the past year."

In June, the city announced it was implementing its Workout Plan to Fiscal Sustainability.

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The city's report on the S&P rating comes months after a Grand Jury report which said Banning Electric Utility customers were "double-billed monthly," and a public records request last month by The Riverside County District Attorney's Office asking for a wide-range of documentations related to the Banning Electric Utility from Jan. 1, 2018 to present.

The city said on Wednesday it adopted its "Workout Plan to Fiscal Sustainability" this year in response to its fiscal emergency and has "taken steps to stabilize operations, including reconciling its utility billing system, pursuing a structurally balanced budget, and strengthening internal financial controls."