The city of Columbus’ credit rating is tinkering on the brink of falling to the “moderate risk” category upon its next assessment, according to a spokesperson with Moody’s Investors Service — the corporation that sets the city’s credit rating.
Moody’s downgraded Columbus’ rating two levels in November from A1, the best rating in the “upper-medium low risk” category, to A3, the worst rating a city can have and still be considered “low risk.” Any further downgrade would place Columbus in the Baa “moderate risk” rung. That could affect the city’s borrowing capacity and interest rates for any new debt.
More specifically, the Columbus rating is A3 negative (as opposed to positive or neutral), which means the near-term financial outlook is expected to continue to deteriorate.
“There’s a possibility it could go down again in the next year or two,” Moody’s spokesperson David Jacobson told The Dispatch. “The outlook on the rating is negative, so there’s still some downward pressure on that rating.”
The credit report notes a 42-percent decline in the city’s general fund balance in Fiscal Year 2017 contributed to November’s downgrade. However, the city operated at a near-$881,000 general fund deficit in Fiscal Year 2018 and could finish this year with another fund balance decrease.
Also contributing to the downgrade was the city’s rising debt service, which the city’s audit report for that year indicated had swelled to almost $30 million. That’s more than triple the $8.2 million of debt the city’s audit report showed for Fiscal Year 2010.
Of the nearly $30 million noted in the 2017 audit report, four bonds, totaling more than $19 million, are money the city borrowed between 2010 and 2016 for street repairs.
Moody’s rates cities’ credit risk level on tiers Aaa, Aa A, Baa, Ba, B, Caa, Ca, and C. Each category has three levels.
Tupelo is rated Aa1, while Starkville is A1, where Columbus previously sat.
Racking up more debt
Although Columbus has a negative outlook, Moody’s report suggests steps the city can take to improve its credit rating, such as: recurring stable revenues, growth in reserves and reducing its debt services.
But since FY 2017, the city has added at least $8 million to its total debt.
In 2017, the city issued $3.2 million in urban renewal bonds for the Columbus Redevelopment Authority’s efforts to purchase lots in Burns Bottom and sell them as one tract to a developer. The bonds are backed by a 2.5-mill ad valorem tax increase that will be retired after those bonds are paid, which could take up to 15 years.
Most recently, the city added $5 million to its bonded indebtedness to restore public property damaged by a Feb. 23 tornado. Federal and state emergency management funds will eventually reimburse the city for 87.5 percent of that amount, leaving Columbus on the hook for $625,000.
The city’s bond attorney, Steve Edds of Butler Snow, said he was not aware the city’s credit rating had dropped in November. In any case, he said that downgrade did not affect the interest rate the city received on the disaster relief bonds.
“We were actually elated at that interest rate,” Edds said. “So obviously any downgrade did not affect this most recent borrowing in any way.”
The Dispatch has tried multiple times to obtain the city’s current debt picture — including through emails, written public records requests and in face-to-face conversations with city officials — but city administration has not provided the updated debt balance. The city’s Fiscal Year 2018 audit report has not been posted on the state auditor’s website.
Declining revenue and deficit spending
Moody’s report also noted that further economic deterioration will continue to put a strain on the city. It noted the loss of JCPenney and KiOR, a biofuel processing plant, to the city’s tax base as major indicators for economic loss.
Since the report, Columbus has continued to lose retailers including Kmart, Sears, Payless ShoeSource, Fred’s and Office Depot. These trends of dwindling economic downgrades and increasing debt have proven taxing to the city. In March, Mike Crowder, an accounting consultant for the city, said the city’s general fund would be $338,000 in debt by Sept. 30 if it didn’t rein in spending or increase revenue.
In response, Mayor Robert Smith enacted a financial savings plan he said would save Columbus $1.1 million. It included raising employee health insurance deductibles, reducing overtime and hiring an outside accounting firm to monitor the city’s finances. It also called for leaving 18 vacant positions, for which salaries and benefits are budgeted, unfilled.
Though Smith has said the city’s finances are doing better, city administration has yet to provide a clear picture of the effectiveness of Smith’s plan. The Dispatch has submitted public records requests for an update on the city’s finances.
Smith was unavailable for comment by press time because he was dealing with the loss of a family member.
‘We don’t really have a plan’
On the cusp of another downgrade, Ward 6 Councilman Bill Gavin and Ward 3 councilman Charlie Box are hoping the city can do two things: stop spending and start saving.
Though privy to the current credit rating, Box said he’s not sure how the city hopes to prevent another drop.
“We don’t really have a plan for that,” Box said. “I hope to God we don’t borrow any more money. That’s the problem. I hate to see that drop. It’s not ever good.”
Gavin agreed the city has spent too much on projects in years’ past, including the $19 million on road projects.
“We have to be very wise of the money we borrow going forward,” Gavin said. “We do have choices down the pike that we can stop spending money. We just need to pay this debt off.”
Gavin did not elaborate what choices the city may consider but said the council needs to be selective and perhaps delay projects that are already on the books.
“(The) credit rating is a concern, borrowing money is always a concern,” Gavin said. “We need to get our debt service down. (The rating) decreases your ability to finance projects and we’ve done a lot of projects.”
Ward 5 Councilman Stephen Jones could not be reached for comment. Ward 2 Joseph Mickens and Ward 1 Gene Taylor declined to comment.
Box, who serves on the city’s financial committee, said the downgrade doesn’t affect the city’s day-to-day operations and likely won’t, but the rating simply doesn’t put Columbus in a good light.
“It’s never good,” Box said. “It reflects negatively on the city when investors are looking at us. It’s not a good thing, but it happens. We just have to work out of it. Hopefully, next year we’ll look better.”
“We’re trying to cut expenses. That’s the big thing,” he added. “We’ve got to manage our expenses better and those are two things we are working on real hard. I’m not sure we’re doing enough of (cutting) spending, but we’ll see at the end of this (fiscal year) when everything filters out.”
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