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VOL. 128 | NO. 252 | Monday, December 30, 2013

Ratings Agencies Weigh In on City’s Bonds

By Bill Dries

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Standard & Poor’s, one of the big three bond-rating agencies, has assigned a AA rating to the city’s general obligation bonds and the revenue bonds proposed for use in a city purchase of AutoZone Park, and has given the city’s financial health a “stable” outlook on both fronts.

Ratings agencies have weighed in on the city’s bonds that are proposed for use in its possible purchase of AutoZone Park.

(Daily News File/Lance Murphey)

The Dec. 10 report follows one from Moody’s Investors Service that gave the ballpark bonds an Aa3 rating and the city’s outlook at “negative.”

The S&P report was released days before Memphis Mayor A C Wharton Jr.’s administration pulled back the complex financial deal after Memphis City Council members delayed a decision on it Dec. 3, then delayed it again a week later after changing the terms of the proposal.

Wharton called off plans to try to get a council vote at the body’s Dec. 17 meeting – its last meeting of 2013. The administration is scrubbing estimates for the sales tax rebate revenue, which is largest single revenue stream to be used to pay off the revenue bonds.

Some council members complained of different sets of sales tax rebate revenue figures over the course of about three weeks in which the administration said it had to have a council decision.

The Moody’s and S&P summaries on the Center City Revenue Finance Corp. bonds expressed confidence in the estimates.

The S&P report concludes the city’s management is “very strong, with strong financial practices.”

Among those practices cited are consulting with the University of Memphis on economic forecasts on which revenue projections are based.

“Recent budget assumptions are more conservative than previously in our view, but at the height of the city’s financial crisis, it became apparent revenue projections under previous management were optimistic and not supported by historical performance,” the report adds.

The Moody’s report was more detailed in its analysis of the city’s overall financial outlook, including a lack of growth in the city’s tax base and an “above-average debt burden” that Moody’s believes could increase.

Long before the ballpark deal and last spring’s warning from Tennessee Comptroller Justin Wilson of the city’s overall financial problems, Wharton and city finance director Brian Collins had repeatedly told council members that the ratings agencies have a different perspective on property tax hikes and the use of city reserves that is based on the financial certainty they give a city.

Property tax increases, while political anathema in the fiscal year in which the council and the Shelby County Commission each raised the tax rates paid by Memphis property owners, are one of the most stable revenue stream to the agencies.

And the city has a 95 percent collection rate on those taxes, S&P also notes – more than $309 million in non-tax revenues that would be available based on the city’s past seven fiscal years.

S&P also cites an available city reserve fund of $78.9 million, which is 13.1 percent of the city’s operating budget. And the summary touts the property tax increase as helping build those reserves after they were depleted in the previous fiscal year.

The ratings agencies are just as skittish about the city delving too deeply into the reserve fund as elected officials are about raising property taxes.

The administration is historically somewhere between the ratings agencies’ preference for something above 10 percent and the council’s willingness to view 10 percent as the maximum reserve required, with anything above that fair game to be put to use where needed.

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