Jackson’s bond payments are skyrocketing this year, and the city has little option but to pay them.
In fiscal year 2019, general obligation bond payments are expected to increase from $7.9 million to $10.6 million, a roughly $2.7 million increase.
Next year, bond payments are going up again, to around $13.4 million, where they will stay until 2024, according to city documents.
In years past, Jackson would look at refinancing the debt in order to lower payments in the short-term. However, with the recent downgrade of the city’s credit rating, there are few options for Jackson except to bite the bullet.
“Anything you do from here on out (while you have the downgraded rating) will have higher interest rates than what you’ve paid in the past,” said Ricardo Callender, senior management consultant with PFM, the city’s financial advisors. “Any refunding opportunities that may exist in the future may be diminished because of the higher rate.”
A special council meeting was held on September 27 to discuss the city’s finances.
The meeting was scheduled in the wake of the downgrading of the city’s bond status by Moody’s Investor Services.
On September 10, Moody’s announced that it had downgraded the city’s general obligation bond rating from Baa2 to Baa3, and its water and sewer bond rating from Baa3 to Ba2.
According to the agency’s Web site, ratings with a Ba are “judged to have speculative elements and are subject to substantial credit risk.” Bonds with a Baa rating are “subject to a moderate credit risk.”
Moody’s cited instability with the water/sewer enterprise fund as a reason for the downgrade, including its “reliance on support from the city of Jackson general fund” to stay afloat.
In August, the city council approved using $5.28 million in general fund monies to prop up the dwindling account. That amount is in addition to the more than $14 million in one-percent funds that have been transferred to water/sewer to help pay for emergency repairs.
“We’re it not simply for the fact that we had to make a loan to the water/sewer enterprise, we could have had an uptick, or a movement up, in our bond rating,” interim Director of Administration Michelle Battee-Day told the council.
The downgrade will likely mean higher interest rates when borrowing in the future, meaning refinancing its current bonds to lower debt service payments is likely off the table.
Jackson has approximately $176.6 million in general obligation (GO) bonds and $238.6 million in water/sewer bonds. GO bonds are issued on the “full faith and credit” of the city and are to be paid back with general fund revenues.
Water and sewer bonds typically are retired from revenues generated by usage fees paid by customers.
However, collections in the water department were down about $26 million last year, largely because of problems with implementing the city’s new billing software.
Agencies like Moody’s adjust credit ratings on average every two years.
To improve ratings, Callender said the city needs to develop a multi-year financial plan for the water/sewer department and the general fund, so the city is “not living day-to-day, but (with) a five-year outlook.”
Additionally, the city needs to better communicate with the bond holders and ratings agencies to notify them of improvements in the financial system.
Council President Melvin Priester said the city is taking several steps to get its financial house in order, including better implementing its “open government” portal.
The portal, once online, will allow city leaders and the public to track expenses in real time.
“It’s a set of tools that will let you look into our accounting and track how various funds are being spent as compared to what was budgeted,” Priester said. “Real-time analytics give me a lot of hope.”
Priester didn’t say when the work would be completed but said employees in finance have been working to implement the software and clean up accounts in recent months, in hopes that the portal can soon go on line.
“We had to clean up some (accounts), invest in new accounting systems and get all the pieces to talk to each other. Things that should have been straightforward took time,” he said. “It’s a project that has been going on in various forms for several years, but we are finally about to make it work.”
