Moody's, which recently became the focus of international attention by having the chutzpah to downgrade the credit rating of the United States of America, has now heaved its rather unsentimental approach to rating bonds straight at the City of Sierra Madre. Here is how they put it all down:
Moody's Investors Service - Global Credit Research - 30 Sep 2011
$3.4 Million Of Rated Debt Affected
New York, September 30, 2011 - Moody's Investors Service has downgraded to A3 from A1 the rating on the City of Sierra Madre Water Enterprise (CA) Revenue Bonds secured by the net revenues of the city's water enterprise system, affecting $3.4 million in outstanding Moody's rated debt. The bonds are secured solely by revenues from the City's water system.
SUMMARY RATINGS RATIONALE: The downgrade reflects debt service coverage levels which were just sum-sufficient in 2010 and 2011, city officials' slow implementation of increased rates in response to weak coverage, the enterprise's strong cash position, and a stable, affluent customer base within the City.
Strengths: Affluent, stable customer base immediately east of Pasadena, CA
Challenges: Debt service coverage which has fallen well below rate covenant for two consecutive years
WHAT COULD MAKE THE RATING MOVE - UP:
- Significant increases in debt service coverage achieved and maintained over the long term.
- Sustained implementation of regular rate increases which would bolster unrestricted cash reserves
WHAT COULD MAKE THE RATING MOVE - DOWN:
- Decreased debt service coverage despite actions taken to bolster unrestricted cash reserves
- Material reduction in unrestricted reserves
This is all pretty self-explanatory, and I don't think I need to write all that much to make the point. The City of Sierra Madre took one of the most bizarre routes to raising the water rates of its resident customers in the history of such things. And in the end it didn't matter, they took our money and still failed to achieve their goal. Here is the breakdown:
1) At first the water rate increase was proclaimed necessary by the City under Mayor Joe Mosca because our pipes were ancient and bursting with frightening regularity. Without that additional money we'd all end up having to bring our water back from city wells in buckets. Or something.
2) Resident researchers called various concerned agencies in Sacramento and discovered that the water pipe repair story was false. Something put out by the City as a sop to get more money out of people they obviously do not respect. The real reason the City needed to raise water rates was to cover water bond rate covenants.
3) The City, in a complete about face, proclaimed that the water rate increase is necessary because of, you got it, water bonds. The residents are told that unless we become compliant with these water bond covenants, our bond rating will fall. And if that happens we will never be able to refinance our $3.4 million in old water bond debt. Which, in its present state, comes with an exorbitant interest rate. At least by today's standards.
4) Rates are raised, new water bills go out reflecting this, people send in their checks, and then what happens? Our bond ratings plummet anyway.
Look at it this way. We were told that water rates had to go up to raise money for pipe repair. Turns out that wasn't true. Then we were told that we needed to raise water rates in order to keep a premium bond rating. Something very necessary if we are to ever refinance our $3.4 million in high interest rate water bonds.
So what happens? The water rates go up, and our bond ratings fall. And it looks like we will continue to have to service those old water bonds at a very high interest rate because the inept people running our affairs in City Hall couldn't bring themselves to tell the people of Sierra Madre the truth right from the beginning. Rather they chose instead to waste time by making up stories about old pipes. Like we're children who can be coerced with fairy tales.
In the end this is about failed leadership from people who just can't seem to bring themselves to tell people the hard truths. About this or anything else.
And did you notice Moody's recommendation? The City needs to increase our water rates several times over if we are ever to come to grips with our bond debt problems. So when were we going to be told about that?
Here's a question. Since the water rate hike didn't achieve its stated aim, which was preserving a high bond score, shouldn't we get our money back? Obviously we didn't get what we thought we were paying for. It seems almost fraudulent for the City to keep money that was gotten under pretenses that turned out to be so entirely false.
Remember when the G4 Council was trying to spend out all of our CRA money to avoid having to give it to Jerry Brown? Some residents suggested that much of it should have been used to pay down our water bond debt. And what was Elaine Aguilar's comment? "City staff doesn't recommend that."
So instead that money was spent on things like a playground swing set, an outhouse in Memorial Park, a consultant study about Sierra Madre consumer consumption habits, a study about parking spots, plus assorted other complete wastes of our money.
I have another question for you. Has there ever been a worse government in Sierra Madre than the one we have now?