Moody’s Investors Service assigned a negative outlook to Hinesville’s $9 million of outstanding general obligation, limited tax-backed debt, according to a Nov. 30 Moody’s news release.
Moody’s is a leading bond credit rating business that provides credit ratings, research and risk analysis for capital markets.
The news release said the negative outlook reflects the city’s declined fund balance, which was below the city’s “formal policy levels” for fiscal year 2011. Moody’s said it believes Hinesville will be challenged in the near future to increase its fund balance in line with historical levels.
The release said the city’s strengths include a “sizable tax base” and “manageable debt burden,” for which it affirmed the city’s Aa3 rating. As a positive, Moody’s said Hinesville benefits from its proximity to Fort Stewart.
“Moody’s believes that the city’s financial position will remain challenged going forward due to a recently weakened reserve position, limited revenue growth and aggressive budget assumptions,” the release stated. “Following the (city’s) deficit in fiscal (year) 2011, (Hinesville) is no longer in compliance with its formally adopted policy to maintain (a) fund balance equal to at least 25 percent of expenditures.”
The release said the deficits were driven by shortfalls in economically sensitive sales and franchise taxes, along with fines and forfeiture revenues. Moody’s noted the city’s fiscal year 2012 budget included $400,000 of the fund balance and pointed out that expenditures and sales-tax revenues were under budget.
“The assignment of the negative outlook reflects the significant decline in reserve position, as well as the absence of a formal plan to either maintain or improve current fund balance levels,” Moody’s said. “This assignment also acknowledges a (1 mill) tax rate increase in fiscal (year) 2013.”
City Manager Billy Edwards responded Monday to Moody’s news release, saying the assignment of the negative outlook was not unexpected.
“We used up our fund balance over the last three years while trying to keep taxes low and still maintain a consistent level of services,” he said. “While they did assign a negative outlook to our G.O. bonds, Moody’s also affirmed our Aa3 rating, and they assigned an A2 rating to our ($11.1 million) water and sewer refunding revenue bonds.”
According to munibondadvisor.com, Moody’s ratings start at Aaa for best quality then Aa1, Aa2 and Aa3 for high quality. Edwards said Hinesville’s Aa3 rating is better than most cities.
A second Moody’s news release also dated Nov. 30 acknowledged its assignment of the A2 rating to the city’s water and sewage bonds.
“The A2 rating reflects a small but modestly growing customer base, weak legal provisions, satisfactory liquidity position and expectations of below-average debt-service coverage,” Moody’s said, noting both the strengths and challenges of the city’s water and sewer bonds. “(There is a) stable tax base due to (its) proximity to Fort Stewart, (and) low debt ratio. (However), recently weakened debt service coverage with dependence on impact fees and below average socioeconomic factors (present challenges).”
During its Nov. 1 meeting, the city council approved a request by Chief Financial Officer Kim Ryon to refund the city’s 1996 and 1998 Water and Sewer Revenue Bonds and the city’s 2001 and 2006 Georgia Environmental Finance Authority loans. She likened the refund action to refinancing your home to get a better mortgage rate. Edwards explained the city essentially issued new bonds to pay off the old bonds.
Edwards said Hinesville’s assignment of a negative outlook by Moody’s should have no effect on the Liberty County Hospital Authority’s plan to issue $14.75 million in general obligation bonds. County Administrator Joey Brown agreed, saying the county already has talked with Moody’s.
“I think they’ll go with the credit rating of the county, not the city,” Brown said. “They’re going to look at our records and our financial stability.”
A hearing for the hospital authority bond is scheduled for
9 a.m. Dec. 10 at the Superior Court of Liberty County.