Fresno City Manager Issues Statement on Moody's Downgrade
FRESNO -- Moody's International yesterday announced that it has downgraded the City of Fresno's lease revenue and pension obligation bonds from Baa1 to Ba1 and Ba2 ratings. This is another in a series of troublesome downgrades of the City's debt reflecting the financial community's ongoing concerns about the City's fiscal condition. The City's theoretical General Obligation (GO) debt rating was left unchanged at A3. GO debt is voter-approved, property tax- supported debt, but the City does not have any such debt at present.
In doing its downgrade, Moody's issued a report that cites several negative factors, including general economic weaknesses of the Valley economy, the City's negative fund balances, the inflexibility of the City's obligations, and their concern over the capacity of the City to make the "hard decisions" called for in the 2012 Fiscal Sustainability Plan. (Additional information on the Moody's report is attached.)
City Manager Mark Scott made the following statement in regard to the Moody's Report:
"Officials from Moody's advised us that while they appreciate our fiscal sustainability plan, they are nonetheless concerned that it relies so heavily on 'political will' to make it happen. And, on the other hand, they worry about our capacity to cut services to the public further.
"By reference to political will, they are talking about elements like the residential solid waste franchise, our ongoing employee MOU negotiations and our efforts to pay back negative fund balances. They also know we will be bringing critical water rate increases to the Council next month.
"If these initiatives are not supported by the City Council and public, Moody's and other financial analysts have concern that the City might fall into insolvency either intentionally or by default."
The City's fiscal condition is exacerbated by the delay in implementing the Residential Solid Waste franchise due to the referendum drive. The franchise would have paid the City an immediate $1.5 million start-up payment and $2.5 million per year thereafter in franchise revenue, while reducing user rates.
Scott made the following comment to the City Council earlier today in an email communication, "All of this (the downgrades) costs our public money on everyday purchases and on lost financial options. I know I keep saying this, but this is serious business, and time is of the essence. We don't have the flexibility to pick and choose our options. It's an 'all of the above' fiscal plan."
Mayor Ashley Swearengin, City Manager Scott and staff are actively working on cost-cutting measures as a result of the delay in the residential solid waste franchise, some of which may require City Council action.
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