Tuesday, April 1, 2014

Metro's credit downgraded by Moody's rating agency but Dean says full steam ahead. Spend, Spend, Spend!


The Tennessean, April 1, 2014 - A major municipal bond rating agency has downgraded Metro government's credit, reflecting the city's "above average debt burden."

Moody's Investors Service also cited two other financial and strategic challenges for Metro: ongoing subsidies for the city's hospital authority and vulnerability to public referendums for some property tax increases.

But a top aide to Mayor Karl Dean said the finding won't necessarily slow the administration's building and borrowing plans after more than six years of ambitious growth, highlighted by a new convention center, a new baseball stadium and a controversial mass transit proposal. The administration expects to send a capital spending plan to the Metro Council this spring.

"We've got to keep moving forward," Metro Finance Director Rich Riebeling said. "And we can afford it." (link)
From Moody's: 
Rating Action: Moody's downgrades Metropolitan Government of Nashville and Davidson County, TN's GO bonds to Aa2 from Aa1; outlook is stable
Global Credit Research - 31 Mar 2014

Affects $2.2 billion in outstanding GO debt

New York, March 31, 2014 -- Moody's Investors Service has downgraded to Aa2 from Aa1 the rating on Metro Nashville Davidson County's (TN) $2.2 billion in outstanding general obligation bonds. Concurrently, Moody's has also downgraded to Aa3 from Aa2 the ratings on the Sports Authority of Metro Nashville's outstanding debt ($157 million) and the Convention Center Authority of Metro Nashville's Series 2010B bonds ($419 million). The outlook on all bonds is stable. The GO bonds are secured by Metro's unlimited ad valorem tax pledge. The Sports Authority and Convention Center Bonds are ultimately secured by a pledge of Metro's non-ad valorem revenues. This action concludes a review for possible downgrade that Moody's initiated on January 15, 2014 in conjunction with our updated local government general obligation methodology.
RATINGS RATIONALE
The Aa2 GO rating reflects Metro's favorable overall economic factors given the city's position as the state capital, and regional economic center, stable financial position with below average reserve levels and manageable debt levels. The stable outlook reflects our expectation that Metro's regional tax base will continue to grow and provide the necessary revenues to support ongoing governmental operations, including annual financial support to Metro's Hospital Authority.
STRENGTHS
-Metro's role as state capital and regional economic center
-Strong management
CHALLENGES
-Financial support of Metro General Hospital Authority
-Property tax referendum requiring public vote in order to raise property tax rate above cap
-Above average debt burden
OUTLOOK
The stable outlook reflects our expectation that Metro's regional tax base will continue to grow and provide the necessary revenues to support ongoing governmental operations, including annual financial support to Metro's Hospital Authority.
WHAT COULD MAKE THE RATING GO UP:
-Increases in reserve levels
-Sizeable growth in Metro's tax base
-Elimination or a significant reduction in Metro's annual subsidy to Metro General Hospital Authority
WHAT COULD MAKE THE RATING GO DOWN:
-Declines in Metro's current reserve and cash levels
-Sizeable increase in debt burden (link)
My Comment: I hope the Metro Council is paying attention.  It is time to stop borrowing and spending. We should have stopped all financial support to Metro General Hospital long ago. We should do it now! The Mayor should announce that due to this report that says a sizable increase in debt burden could make the ratings go down further, that the $175 million + AMP project is being deferred indefinitely.

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