City financial picture brightens, according to bond rating outfits
By Chip Drago
Mobile Bay Times
The city of Mobile earlier this month got welcome news -- if puzzling to the head of the City Council finance committee -- from two government debt rating services which upgraded their opinion of the city's financial condition.
Moody's Investors Service upgraded the city's bond rating to A1 from A2. Standard & Poor's also boosted its rating from A+ to AA-.
"The rating upgrade reflects the city's improved financial position, marked by prudent fiscal management and solid reserves," Moody's opinion reads. "The rating also incorporates a sizable and growing economic tax base and manageable debt burden."
The A1 rating applies to the city's new $56 million bond issue and also affects almost $186 million in previously issued debt.
City Councilwoman Connie Hudson, who chairs the council's finance committee, found "bizarre" a reference to a multi-million dollar reserve fund.
Secured by the city's general obligation, limited property tax pledge, the $56 million will finance various infrastructure improvements related to the new $3.7 billion ThyssenKrupp steel plant in north Mobile County, a public safety "super station" in west Mobile and a metro emergency radio system.
The German steelmaker chose Mobile last year as the location for its "state-of-the-art" carbon and stainless steel processing facility which is expected to commence operations in 2010. When fully operational, the plant will employ 2,700 workers. The company recently began accepting job applications.
"The city's economy has become increasingly diversified in recent years, following a downturn related to the closing of local paper products plants," Moody's noted.
New "ancillary or tier 1" supplier companies trailing in the wake of the ThyssenKrupp plant should further lift a growing economy. Moody's acknowledged other positive economic factors brightening Mobile's future, including EADS' arrival and possible huge footprint in Mobile, an expansion at Bender Shipbuilding and the blossoming of the Port of Mobile, the nation's11th largest port.
Moody's said it expected the city to observe "conservative budgeting practices, prudent fiscal management and growing reserve levels."
Mobile has benefited from "strong sales tax revenue growth" in recent years, according to Moody's. The boom has allowed the city to beef up its reserves in both the General Fund and Capital Improvement Fund, Moody's opinion reads.
"That's the most bizarre thing I've ever heard," said Hudson, who cautioned that she has been out-of-town and hasn't read the reports. "We only started talk of a reserve last year, and put aside very little, $250,000, a quarter of a million. There's no (giant) reserve to my knowledge."
"Maybe they're saying there's a carryover somewhere," she said. "There needs to be more of an explanation. If we have a reserve, I want to know where it is. I sure didn't see it in the budget ..."
Hudson said poor communications with the mayor's office may have left her in the dark.
"He (Mayor Sam Jones) needs to share this with the council," she said. "We need to have a finance committee meeting ... if he's anticipating surplus money. The reality of the situation is: if we've got surplus money, why do we have to keep transferring (funds) out of capital (to pay for operating expenses)? Why do we borrow? Why? It doesn't add up. Why has there been no discretionary capital for the districts?
"If you've got money available, why do you borrow money?
"Two weeks ago, (District 2 City Councilman) William Carroll asked the mayor about discretionary capital monies for the districts and the mayor laughed and said, 'This quarter's over.'"
"Everything is so cryptic," Hudson said. "The city council should not have to rely on (media reports) to get information, especially on money matters, our current status in revenues. But that's the way it seems to be; if there's a change in our financial status, we need to be apprised of it, particularly as it relates to capital improvements."
"If we have surplus revenues, why do we borrow money to the tune we're borrowing money?" Hudson asked. "It's expensive to borrow money. Even at a good rate on a good day, it's still expensive."
Calls to the mayor's office and his executive assistant Barbara Drummond were placed but they were not immediately available. City Finance Director Barbara Malkove was not available until next week, according to her office.
Over the past five years, sales tax revenues for the General Fund have risen 31 percent, an average annual growth rate of more than six percent. Although the increase was undoubtedly skewed by increasing consumer spending tied to Hurricane Katrina, revenues continued to grow in 2007, albeit at a slower rate.
Moody's pointed out that while the city has benefited from spending tied to recent hurricanes, Mobile is itself also vulnerable to hurricanes.
City officials estimate sales tax revenues for fiscal 2007, unaudited, at $120.5 million; still, well above pre-Katrina sales tax revenues of $107.2 million for fiscal 2005.
The city also saw similar growth trends in business license revenues, marking a rise of 18 percent since 2002. More recently, however, the city saw a decline in this revenue source to $28.9 million in fiscal 2007 from $29.6 in 2006. According to Moody's, the slippage merely reflects a return to normal growth patterns rather than an overall slowdown in the local economy.
Finishing fiscal 2006 with an operating surplus, the city boosted general fund reserves by more than $6 million. Moody's credited the city for conservative budgeting. A general fund balance of $23.09 million at the end of fiscal 2006 was a "satisfactory" 11.4 percent of annual revenues, according to Moody's.
Moody's noted that non-designated reserves in the Capital Improvement Fund and in the General Fund equaled $42.4 million, or a "solid" 21.1 percent of annual revenues.
"The Capital Improvement Fund is funded primarily with sales tax receipts, with one and two-thirds cents of the city's four-cent (on the dollar) sales tax diverted to his fund for capital maintenance," Moody's stated.
"However, these monies are legally available for operating purposes, and the city transfers a portion (sic) to the General Fund each year," Moody's noted.
The city's well-established practice of transferring monies from the capital fund to the operating fund over the years has drawn the criticism of certain past and present city council members, including John Peavy, Bess Rich, Stephen Nodine, Ben Brooks and Hudson.
Management anticipated another operating surplus and an increase in overall reserves to conclude fiscal 2007.
Moody's indicated it would monitor the city's commitment to maintaining one month's operations monies in the General Fund as "a hurricane reserve" as well as city efforts to establish minimum reserve levels in both the General and Capital Improvement funds.
According to Moody's, believes the city's debt burden is manageable and will gradually decline given" because it will not borrow, but use cash to pay for additional capital needs.
"The city has no authorized but unissued debt and anticipates cash financing (of) routine capital maintenance through the Capital Improvement Fund and does not have additional borrowing plans at this time," Moody's opinion reads.
Among the key statistics Moody's cites in its report:
- 2006 population, 192,830;
- FY 2007 Full Value (estimated), $12.01 billion;
- FY 2007 Full Value Per Capital (estimated), $62,294;
- Direct Debt Burden, 2.2 percent;
- Debt Burden, 4.0 percent;
- Payout of Principal (10 years), 47.7 percent;
- 2006 General Fund Balance, $23.09 million or 11.4 percent of General Fund revenues;
- 2006 Combined Fund Balance (General and Capital Improvement), $42.78 million or 21.1 percent of combined revenues);
- 1999 Per capita income as a percentage of the state average, 99.4 percent;
- 1999 Median family income as a percentage of the state average, 95.4 percent;
- Unemployment (October 2007), 3.3 percent;
- Post-issue Parity Debt Outstanding, $241.9 million.
