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Monday, Sept. 11, 2017

A LOWER BOND RATING

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City’s economy on the decline

In all the continuing hubbub over the pros and cons of issuing bonds for a sports complex on Cross Bayou, the stark reality that Shreveport’s general obligation bond rating was recently lowered by Moody’s Investors Service should not be overlooked.

Although the downgrade was only from A2 to A3, the credit opinion offered limited optimism for the city’s current economy while addressing significant credit issues.

Moody’s, the bond industry's benchmark rating service, assigned a “negative outlook” due to weakness in the energy sector, the lack of economic development, and increased operational costs, including the funding of substantial pension contribution shortfalls. In a press release, Mayor Ollie Tyler attempted a positive spin on the downgrade, saying that it “will not affect the city’s ability to continue infrastructure improvements." She failed to note that the city can expect a higher interest rate on future bond issuances as well as the current bonded debt of over $175 million.

Another “elephant in the room” not to be ignored during all the sports arena hype is the pressing needs of Shreveport for future infrastructure improvements of over $1 billion-plus. The mid-year report of the city engineer outlined huge challenges to the continuing (and growing) responsibility to fix, replace and upgrade sewers, streets, roads and the water supply system.

The most sobering findings noted that the city’s sole water treatment plant operates, at peak, below its original capacity due to overdue maintenance and repair. Paired with this are concerns over the source of city water – Cross Lake – which needs $200 million in upgrades as well as repairs to the Cross Lake dam. After the problems in Texas over municipal water supplies and the recent Red River and Cross Lake flooding, these critical issues should now take on new meaning to a population that has too long held a "never happen to us” mentality.

Moody’s report noted that the city’s population has only increased 0.4 percent since 2010 and that unemployment was higher in June than the state and national rate.

Moody’s also reported that the median residential income was equal to 74 percent of the national average. Additionally, Shreveport had general fund deficits in four of the last six years due to weak revenue performance, particularly sales taxes, which comprise over 50 percent of the general fund revenues.

The continuing decline in gaming revenues was also a factor in Moody’s downgrade. The Riverfront Development Fund has been tapped for increased operating expenses as its revenue has dwindled, which is expected to continue. Additionally, poor liquidity is a detriment to future credit. The city’s goal of a 5 percent reserve of its operating budget will not be met this year; it could be less than 2 percent by year end. Moody’s also noted that the city’s long-term liabilities “are elevated, and growing fixed costs will continue to pressure the budget.”

Other findings of merit in the Moody’s report were also gloomy, such as the continuing history of contributing less than the actuarially determined contributions for pension liabilities. Moody’s “tread water” amount of $30.2 million in funding is the annual amount required to prevent the pension liability from growing. This year’s budget has a $25.5 million in pension funding.

And for those that look to trends, the last three years have not been promising in several areas reported by Moody’s. Fund fiscal balances as a percentage of revenue have declined from 29.2 percent at the end of 2014 to 25.8 percent at the 2016 year end. The cash balance, as a percentage of revenue, at the 2014 year end was 10.6 percent and only 2.2 percent at the end of 2016.

The proposed sports complex and mixeduse development, if constructed, will improve on a short-term basis sales tax revenue; longterm additional ad valorem tax revenue will also increase provided no ad valorem tax abatements are included in the final package to land the mixed-use development. Government leaders should not sit back and expect these projects to be the magic genie that solves growing financial challenges of the city. Expect these concerns to be campaign issues next year in the mayoral and council elections.

John E. Settle Jr. has been a resident of Shreveport since January 1977. His articles appear regularly in local publications. He can be reached at 742-5513 or e-mail to: John@jesettle.com.

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