A credit ratings agency slapped the city with a gloomy “outlook” as officials prepare to sell $44.5 million in new bonds.
The downgrading of the city’s “outlook” came Wednesday in a report from Moody’s Investor Services. It means Moody’s sees city bonds as a potentially riskier investment, based on its predictions of New Haven’s financial future.
Moody’s concluded that New Haven government is keeping too little money in reserve and is carrying too much debt for a city its size.
It also shared a concern expressed by Mayor John DeStefano in budget negotiations with city unions: that New Haven faces too heavy a pension burden.
Acting City Controller Mike O’Neil said Thursday that officials were pleased about a more important decision Moody’s made — to keep the city’s bond rating at A1. That affects how much it costs the city to borrow money. Three major ratings agency recently issued reports on the city’s financial condition as a precursor to a July 20 bond issue. All three kept the overall rating the same, O’Neil noted. (Standard & Poor’s set it at A‑, Fitch at A+.)
“We’re encouraged on the whole,” O’Neil said.
The downgrading of an “outlook” sends a note of caution to investors and a warning to city budget-makers. While the bond rating indicates that Moody’s sees New Haven as still a good investment, the “outlook” downgrade indicates that it might not stay that way.
O’Neil was asked if the outlook change would affect the upcoming bond sale, which would support a host of projects including school construction.
“We won’t know until we have the sale on the 20th what it means,” he replied. “It depends on the bidders and how they feel. They will have access to a lot of information about the city. They’ll have more than the two or three pages that each of the ratings agencies” published.
Democratic mayoral candidate Jeffrey Kerekes called the Moody’s report “a condemnation of the DeStefano administration.”
“And I’ll tell you why,” Kerekes said. “We’re really getting hit because we raided the rainy day fund, the emergency fund. This wasn’t an emergency. He passed a previous year’s budget knowing there were holes in it. He’s been doing that for years, passing budgets with holes in it.”
“Given the current crises facing the national, state and municipal budgets, this should come as no surprise,” chimed in Democratic mayoral candidate Clifton Graves. “But what is troubling is that Mr. DeStefano at his recent re-election announcement stated that New Haven was doing great. He clearly needs a reality check.”
Trouble Signs
The ratings report offers an independent expert overview of government finances.
In that overview, Moody’s noted several areas of concern:
• The city projected a $6 million deficit for the fiscal year that ended June 30.
• The “undesignated portion” of the city’s financial reserves fund — i.e. the rainy day fund — dropped this past year from $16. 1 million to a “slim” $9.1 million, or 2 percent of overall revenues.
• The general city government pension accounts were just 52 percent funded at the fiscal year’s end, and police and fire funds a mere 45 percent. (The numbers in 2008: 59 and 61 percent.) The mayor has been calling for modifications in pension plans to stabilize the funds and prevent future deficits.
• City government’s “Internal Service Funds” — which covers workmen’s compensation and self-insurance for lawsuits — had a $16.5 million deficit. That’s better than the previous year’s $21.6 million shortfall. But with uncertain future lawsuit payments looming, notably in the Ricci firefighters’ case, Moody’s is skeptical of improvement.
• New Haven’s adjusted 6.1 percent debt burden, much of it coming from school construction projects, “is well above the median level for similarly-sized cities.”
“The city’s ability to maintain stable fiscal operations is expected to remain challenged given its currently narrow reserve levels, a projected fiscal 2011 operating shortfall, increasing pension contributions, and a still sizable deficit in the Internal Service Fund,” the report stated.
Improving Signals
The conversation between Moody’s and city officials took place in late June, after the city released its monthly financial report for May. That report had two negative surprises: a seven-figure dip in expected building permit revenue for the year and word that the state was delaying millions of dollars in education reimbursements.
Since that report came out, the city has gotten word that that education money will in fact probably arrive from the state before the end of August, according to Acting Controller O’Neil. That means the city would be able to pay outstanding bills from the just-ended fiscal year in time to have it count toward that fiscal year’s deficit.
Read the city’s May financial report here.
No one is to blame for this fiscal mess except John DeStefano, since he has been Mayor for a number of terms . It is time to place this professional politician on the unemployment line so he can experience the economic distress that he has been giving to city workers and residents which