Its no real surprise to city hall observers that the bond buzzard finally dumped on Shreveport City Hall—on September 15 Moody’s Investor Services downgraded the City’s bond rating from A2 from A1. Actually those in the know were pleasantly surprised that reduction was not more severe. The downgrade will affect the $228 million in outstanding General Obligation Bonds that are yet to be issued and sold on the bond market.
According to a press release from Global Credit Research, the A2 rating and downgrade reflects prolonged weak liquidity in the Shreveport’s General Fund, steady draws on reserves, and challenges to building liquidity in the near-term. The bond rating could go up if the City’s debt decreased and the city reserves increased; an expansion of the tax base would also be a positive factor. Likewise, the bond rating could continue to decline if fixed costs were not managed prudently and the pension/retiree health benefit liabilities continued to be underfunded.
In February of last year the bond news was totally different when the City’s A1 rating was reaffirmed. At that time Moody’s determined that the City’s financial stability and new signs of economic growth were favorable. At that time Moody’s believed that the City was on the right path as far as shoring up the reserve fund balance and new financial management practices that had been adopted by the City. Thankfully this rating was issued before the discovery of over billing by the City’s then financial adviser Calvin Grigsby.
Evidently—and thankfully—Moody’s financial gurus have not tracked the City’s stagnant economy this year and the growing concern by many in the local financial world that the City’s short and long term future is not bright and sunny. Most businesses suffered—either directly or indirectly– from record early spring rainfalls followed up by the Red River flooding; the flood “watch” and “recovery” periods virtually paralyzed all businesses other than flood retention contractors and then flood recovery/restoration companies. The magnitude of the rainfall and flooding losses, as large and widespread as they were, was easily dwarfed by the unrelenting shock waves from the plummeting decline in oil and gas prices that seemingly have no bottom.
When the 2014 bond rating was announced, Mayor Glover reminded Shreveport citizens that “placing our City on firm financial ground was a commitment I made to our citizens during both of my campaigns for Mayor.” The 2104 bond news was virtually too good to be true and many local politicos believe that maintaining the A1 rating was the highlight of Glover’s second term in office—if not his entire 8 year mayoral reign. It was only during 2014 fall budget process that the more accurate, and discouraging, revelations on the City’s reserves and unfunded liabilities became apparent to the Council and the public in general.
The Tyler Administration addressed the budget challenges earlier this year by having the Council approve an increase in the Centerpoint franchise fee. The fee which is a direct pass through to natural gas customers was raised from 2.0% to 4.5% which represents a 125% increase. Late in her mayoral campaign Tyler pledged to not raise taxes for Shreveport residents; how she reconciles the Centerpoint franchise fee increase with her campaign platform is an unknown. What is known is that the fee increase was not dedicated to any specific purpose and that the ordinance adopting the increase also requires Centerpoint to raise Shreveport’s rate any higher rate Centerpoint agrees to with any other Louisiana municipality.
The City’s reserves are estimated to be between $2.5 million and $3 million dollars. Depending on the perspective of the analyst, i.e. optimistic or pessimistic, the reserves should be between $13 million to $18 million. When the Tyler administration presents the 2016 budget to the Council this month more detailed information should be available on the current reserve amount plus any efforts to be made to increase the same; to date Tyler has not made any efforts to address the budget elephant in the room even though she promised to aggressively deal with this issue during her campaign.
Additionally Tyler should take aggressive steps to address the factors that resulted in the bond downgrade. Although it can be argued that the decrease was only minor, it will cost the City more money for the next bond issue in the form of a higher interest rate. More importantly the downgrade factors foreshadow the reality of the Shreveport economy, the City’s budget which has not been reduced, and the problems that must be addressed in short order to ensure growth for Shreveport.