Thursday, March 6, 2014

UG 'on brink' of bond rating downgrade


KANSAS CITY, KAN. ----- Unified Government Commissioners were warned Thursday night that a bond rating decrease could come at any time if Wyandotte County continues on its current financial path.

Officials from Moody's Investors Service and the city's financial advisers made a presentation to commissioners about the bond-rating process and the current shape of finances in Wyandotte County.

David MacGillivray, Chairman of Springsted Incorporated, told commissioners that the current bond rating is Aa3 with a negative outlook.

"If the fund balance goes down in 2014, there's a high probability you will get downgraded," MacGillivray told commissioners. "We are bringing in less money than we're spending. If that continues in 2014, there's downward pressure on the rating."

How much would a bond rating decrease effect finances when it comes to bond interest?

In February, the Unified Government issued around $29.5 million worth of general obligation bonds.  Had that amount of bonds been issued with a lower credit rating, the UG would have paid an additional $900,000 to $1,300,000 worth of interest.

Moody's analyst Chandra Ghosal said the bond rating is determined by four factors: Tax base, finances, management and debt/pensions.

"We view pension liability as a long-term debt," Ghosal said.

After the great recession hit the UG budget hard, the 2011 and 2012 budgets added revenue to the fund balance. But by the end of 2014, the fund balance could decrease to just $2 million.

Even before tonight's presentation, there was a sense of urgency with commissions when it came to finances.  For the first time, the UG began its budget season in February with meetings and funding requests.

Commissioner Ann Murguia called for a long-term strategy on not only preventing a decrease, but increasing the UG's bond rating.

"I'd like to see us worker closer and turn this current trend around," Murguia said.

Unified Government Mayor/CEO Mark Holland also stressed the importance of maintaining the rating.

"We have to protect our credit rating," Holland said. "We are the only ones that can protect the rating. We can balance the books and help us save money. Our ability to borrow goes down as our interest goes up."

UG commissioners will hold a budget workshop this Saturday morning to continue the discussion.