Tucson Muni Bonds Downgraded

This article appeared in the Arizona Daily Independent on 3 June 2013:

Moody’s downgrades Tucson bonds

June 3, 2013

By

Moody’s Investors Service has assigned a Aa3 rating to the City of Tucson’s General Obligation Bonds Tax-Exempt Series 2012-A (2013) and General Obligation Refunding Bonds Federally Taxable/State of Arizona Tax-Exempt Series 2013-B. At this time, Moody’s downgrades to Aa3 the rating on the city’s $185.3 million in outstanding parity General Obligation Bonds.

Moody’s also downgrades to A1 from Aa3 the city’s Certificates of Participation outstanding in the amount of $252.8 million.

Proceeds from the current issuance will be used to fund various street and road improvement projects and to refund certain maturities of previously issued general obligation bonds. The current offerings are secured by the City’s unlimited property tax pledge.

The outlook on the city’s long-term ratings has been revised to stable from negative.

According to one expert in the Tucson area, it will cost more to borrow money; and Tucson borrows money on a regular basis and will be borrowing $100 million for road repair. This will mean that more money will be going to bond holders there will be less money roads, public safety, parks, and social programs.”

Moody’s told Tucson what they are doing wrong. They noted that the budget is not balanced. Essentially using one credit card to pay off another. The “Rainy Day Fund” is low and declining. The city is spending too much money subsidizing transportation, with out any consideration to cut Sun Tran routes at all. Soon it will also have to subsidize the Trolley as well.

Neither Moody’s or local experts and city watchers are hopeful that the city is committed to address these issues in a timely or even responsible manner.

Moody’s has also downgraded to A1 from Aa3 the Rio Nuevo Multipurpose Facilities District Certificates, Series 2009 ($12.56 million outstanding) and the Civano Phase 1, Neighborhood 1, District Special Assessment Improvement Bonds ($1.12 million outstanding) to A1 from Aa3.

Moody’s Summary of Rating Rationale:

The downgrade to Aa3 reflects a still relatively weak financial position compared to Aa-rated cities nationally featuring chronically low general fund cash and reserve levels and above average levels of debt. The Aa3 rating also takes into account the city’s large and diverse economy that is in the beginning stages of recovery. The revision of the outlook to stable from negative reflects our view the City will continue its efforts to improve cash and reserve levels albeit at a slow pace. The outlook also takes into account that the city will continue to be challenged to improve its overall financial position given a trend of growing pension and OPEB costs and increased mass transit subsidies.

Strengths:
-State and local consumer-related revenues continue to improve, albeit slowly
-Stabilizing university presence

Challenges:
-Relatively low reserve levels combined with a high exposure to economically-sensitive revenues
-Trend of increased mass transit subsidies and costs associated with employee benefits

What could make the rating go up:
-Sustained long-term economic growth and diversification
-Long-term improvement in wealth measures
-A formal commitment to higher reserve and cash levels given exposure to economically-sensitive revenues

What could make the rating go down:
-Weakened financial performance below budgeted expectations
-Ongoing budget imbalances, with no plan for a return to structural balance
-Long-term sustained deterioration of tax base

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