UPDATE: Updated information in [red]
As was expected, Annapolis City took a hit when [two of] the three Bond Rating Agencies downgraded the ratings. This move will certainly have a negative effect the city’s cost to obtain financing through the bond market. The administration, including Mayor Cohen, City Manager Mallinoff, and Finance Director Miller have all put forth reassurances that the city is on the right track. However, Moody’s Investors Service has a different opinion.
In a March 4, 2011 opinion, Moody’s offers their rationale behind the downgraded ratings:
The bonds are secured by the city’s unlimited ad valorem tax pledge. Approximately $6 million of bond proceeds will provide new money financing for various capital projects. The remaining $32 million will be used to refund all or a portion of the city’s Series 1998, 2002, 2005, 2007 and 2009 Public Improvements Bonds. The refunding will extend overall maturity by 11 years and will provide approximately $17.8 million of cash flow savings through 2018, with the majority of savings taken during fiscal 2011, 2012, and 2013. The downgrade to Aa3 rating from Aa1 rating reflects the city’s rapid financial deterioration and weakened liquidity position driven by insufficient budget adjustments to offset revenue shortfalls throughout multiple funds and growing expenditures. Moody’s anticipates the city will be challenged to grow reserves and return to its formally strong liquidity position over the near-term. The rating is balanced against a manageable debt position and a sizeable and diverse tax base.
The negative outlook reflects Moody’s expectation that the city will continue to face difficulties in the implementation of budget adjustments, including revenue enhancements, that will result in a stabilization of the city’s declining financial position. In addition, the liquidity position may continue to face pressure over the near-term as the city attempts to return to structural balance and surplus operations.
The full document continues to detail both the positives and the negatives of the city financial situation. They do feel that the recent shakeup in the Finance Department is a good thing, but are not convinced that it will be as effective as projected.
This is exactly what many of us have been saying while the Mayor has claimed he has a “balanced budget” that is “right sized”.
Moody’s analysis provides probably the best independent review we will get of our financial situation– and they have found serious current budget problems–not to mention that now all of our $86 million in bonds are downgraded an incredible two notches, affecting our cost of future borrowing.
–Trudy McFall, former candidate for Mayor
As the Mayor is preparing to make his State of the City address on Monday (7:30pm, Monday, March 14, 2011 at City Hall), this opinion surely should factor in the budget negotiations. The Mayor and the Council have been known to lock horns and we expect nothing less this budget season.