For the second time in two months, a major bond rating agency has downgraded New Haven’s rating, citing the city’s low cash reserves and high pension liabilities.
On Monday, Moody’s downgraded New Haven from A1 to A2. The bond rating agency had lowered New Haven’s “outlook” in 2011. The outlook remains “negative.”
The Moody’s move comes just two months after Fitch, another bond rating agency, lowered the city’s bond rating from A+ to A.
Both agencies offered similar reasons for the change. The city has a small general fund balance, a deficit in the current and previous fiscal years, and high fixed costs from pension obligations, according to the report from Moody’s.
Lowered bond ratings can make investors wary of trusting the city with their money and can increase the cost of borrowing money.
The city employees pension fund and the fire/police pension fund are funded at a ratio of 42.5 and 47.5 percent, respectively. The city has about $3.8 million in its “unassigned” fund balance, a figure that will drop as the city tries to pay down the existing deficit. The amount is just a fraction of the recommended fund balance level.
“A rule of thumb often used is that the fund balance should be 5 percent of the operating budget,” said city spokeswoman Anna Mariotti. “In our case with a $486m budget that would equate to roughly $24m.”
“It’s a measure of the struggles we’ve been going through,” Joe Clerkin, city budget director, said of the Moody’s downgrade. “We’re in a position of having gone through difficulties.”
He said the rating decrease moves the city from the high end of Moody’s “upper-medium band” to the middle of that band.
Fiscal year 2013-2014 “should be set up for a better year,” Clerkin said. “But we have to see how it goes.”
East Rock Alderman Justin Elicker, one of seven candidates for mayor, released a statement on the downgrading:
“Moody’s decision to downgrade the City’s debt is a clear result of the systematic mismanagement of our municipal finances—taking on immense amounts of debt, failing to adequately fund our pension, healthcare and insurance liabilities, and running our fund balance to dangerous lows. Continuing to raise taxes and sell city assets is not the solution. We must work to address our structural budgetary problems today, rather than passing these problems on to future generations.”
posted by: Noteworthy on June 18, 2013 6:14pm
Justin Elicker is ever so eloquent and statesman-like in his comment.
This is not reflective of “the difficulties we’ve been going through.” It is directly related to using the city budget for patronage, to pay off the union employees and the union vote-pullers. It is directly related to the mindless rubberstamping of budgets that lead to $100 million in spending increases since 2007; that buy a police and fire yacht; that bribes principals to do the right thing on school reform; that builds monuments to education, while not educating and that hold no more children than they did when the buildings were a quarter the size they are today.
This is the third downgrade of the city’s bonds that started five, maybe six years ago. There has been no improvement from DeStefano. This is his report card along with the union controlled BOR and its President. Borrowing costs will now go up and the $68 million in the budget for debt service will not be enough. Meanwhile, the approved plan is to spend more, borrow more, hire more cops and firemen to rival Detroit and its finances.
posted by: NewHavenTaxTooHigh on June 19, 2013 9:23am
No surprise here. The City’s tax and spend policies are unsustainable. No amount of development will adequately offset the huge education expenditures and pension obligations. If Harp gets into office further downgrades are inevitable given her support of the unions.
posted by: cedarhillresident! on June 19, 2013 3:41pm
sad reality of New Haven. Elicker is dead on in his statement. What scares me is we have a few candidates that will continue to do what JD did until we take a dive in the bankrupts pit… lets see how those pensions look after that. We are our own worst enemy’s. People voted and supported the very folks that allowed this to happen. We need to snap out of it…and that includes the city workers! We need to save our city and this election year is the big one.
Vote for Elicker!
posted by: accountability on June 19, 2013 10:15pm
Look, the DeStefano machine is wheezing to a close. And good riddance.
But let’s not kid ourselves. The bond rating agencies have no credibility at all. Zero, zip, nada.
Moody’s? Fitch? They certified warehouses full of crap sandwiches as gourmet meals for years to help the banks inflate the real estate bubble and make fortunes selling phony financial “products.” The financial crisis and the longest recession since the 1930s was enabled by their corrupt, fraudulent rating of securitized mortgage products as AAA. Millions of people around the world lost their jobs, homes and in some cases their lives due to the ensuing economic collapse.
for a news source to consistently report on their ratings as if they were sober, independent, factual analysts, without at least MENTIONING the fact that they told monstrous, whopping lies for years to enrich their bankster clients is the height of irresponsibility. I am so sick of reading Paul’s stories about these dirtbags as if they have any credibility.
They. Have. a. Political. Agenda. It’s called “austerity.” They carry the water for the bond markets, and the bond trading masters of our universe believe that our political system exists to transfer money from us to them. That’s what the LIBOR and municipal bond scandals are all about—screwing municipal governments by fixing interest rates above the market.
They hate public services, they hate working people, they hate kids who aren’t rich and they don’t give a damn about anyone but the one percent. They’re going to jam cuts in city services down the throats of everyone in the country, because they think we don’t deserve to have our garbage collected, our fires put out or our kids educated.
The idea that we have to prostrate ourselves before these mendacious brigands to borrow money is sickening. Bond ratings are political theater. I’m not a DeStefano fan at all, but the City of New Haven is no more likely to default today than it was yesterday or last year.