Saturday, March 1, 2014

Moody's Shocker: Sierra Madre's Water Bonds Will Remain Junk Even After Water Rates Are Raised

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Back during the run up to the 61% water cost increase recently foisted upon the residents of Sierra Madre, there was something City Hall promised this rate hike would accomplish. That being to improve the Moody's Investors Service rating of our at risk water bonds. By paying a large amount more for water, ratepayers here would at last satisfy all applicable bond covenant requirements, and bring our Moody's bond profile back up to respectability.

This was deemed crucial by the fiscal finaglers running this town, and seen as the way of getting us out from behind an eight ball of many millions of dollars in water bond debt. Debt that is financially crippling Sierra Madre's water company, and so much else in this community. Pay more for water said City Hall, and everything will become right again. Or at least that is what they were promising.

Mayor Nancy Walsh, in an August of 2013 interview with the Pasadena Star News, which was given prior to our most recent water rate increase being approved, shared the following reasons for raising the cost of the wet stuff to those living here in Sierra Madre (link).

Sierra Madre expects to raise water rates once againMayor Nancy Walsh said Wednesday that residents can expect future water-rate increases to offset the city’s low credit rating. Though a current study determining the effects of water rates is still under review, “no doubt there will be an increase” again, she said. 

“We need to make sure we’re good on our bond covenant,” the mayor said.

When the rates were discussed in 2010, Walsh was a council member and advocated an initial rate increase of 15 percent, followed by 3 percent increases the next four years. That proposal angered residents and the council ultimately approved 7.5 percent, Walsh said.

“I did not support the rate that was proposed, but I was outvoted,” she said of the 7.5 percent increase. “In the end, I had to vote for it. Any money helped.”

“Shortly after, our credit was downgraded,” Walsh said. “This is really talking about our credit. It’s our No. 1 priority.”

That seems pretty clear, right? Raise the water rates 61%, refurbish our troubled water bond covenants, and life would be good again. Our bond ratings would recover, opening the door to the refinancing of our sadly out of whack water bonds.

As an example, the interest rate on our 2003 Water Bonds is at a very high 5.3%. And since the financial geniuses running this town back then decided it would be best to pay only the interest on that controversial $6 million dollar bond issue, we now find ourselves having unnecessarily added another $9 million dollars in hard debt. Bringing the total debt load on just the 2003 bonds alone to nearly $15 million dollars.

And it wasn't just Mayor Nancy Walsh who said that we needed to raise water rates to repair our Moody's water bond ratings. Our hard working City Staff was getting the word out as well. This from the vast stacks of water rate propaganda to be found on the City of Sierra Madre website:

Without proper revenue to cover operational expenses, which include the City’s bond covenants, the City’s Water Fund credit and bond rating could further deteriorate. In September 2011 Moody’s investor service downgraded the City’s Water Enterprise bond to an A3 rating from an A1 rating. The rationale for the downgrade was insufficient debt service coverage levels and slow implementation of increased rates.

So water rates were raised substantially, and now our bond ratings have returned to health, right? As promised? Well, not quite. This from a press release issued by Moody's Investors Service on Thursday (link).

Rating Action: Moody's confirms Sierra Madre (CA) water revenue bonds at Ba1; removes from review - Global Credit Research - 27 Feb 2014 - $2.6M debt affected 

New York, February 27, 2014 -- Moody's Investors Service has confirmed the Ba1 rating on the City of Sierra Madre (CA) Water Enterprise's 1998 Revenue Bonds, of which there is currently about $2.6 million outstanding. The enterprise has an additional $7.9 million in outstanding debt not rated by Moody's but considered in our analysis, including $6.8 million Series 2003 parity bonds. The 1998 bonds are secured by a senior lien on the net revenues of the water enterprise. Concurrently, we have removed the rating from review. 

The rating was placed under review for further possible downgrade on December 12, 2013 in anticipation of the outcome of Proposition 218 rate increase protest. The protest failed and a rate increase ordinance has been adopted by the city.

So rather than our ratings recovering, Moody's has instead mired our water bonds at the exact same junk level they were before the rate hike. These bonds will still be considered very risky by investors, even though the cost of water in Sierra Madre has been radically increased.

Here is that original Moody's announcement (link) dropping our water bond ratings to junk. It was released in December of 2013, prior to our latest water rate hike:

Rating Action: Moody's downgrades Sierra Madre (CA) water revenue bonds to Ba1 from A3; rating placed on review for further downgrade- Global Credit Research - 12 Dec 2013 - $3M debt affected

New York, December 12, 2013 -- Moody's Investors Service has downgraded to Ba1 from A3 the City of Sierra Madre (CA) water enterprise's 1998 Revenue Bonds, of which there is currently about $3 million outstanding. The enterprise has an additional $8.1 million in outstanding debt not rated by Moody's but considered in our analysis, including $6.75 million Series 2003 parity bonds. The 1998 bonds are secured by a senior lien on the net revenues of the water enterprise. 

Concurrently, we have placed the rating under review for possible further downgrade, pending the outcome of Proposition 218 rate increase process scheduled for late January 2014.

So it appears that all we got out of this from Moody's was a decision to not drop our water bonds to an even deeper level of junk. Is that worth paying 61% more for water?

How is it our water rates were substantially raised, and the Prop 218 protest effort thwarted, yet Moody's still has our water bonds rated at exactly the same junk level? Wasn't raising water rates supposed to remedy this situation, making the refinancing of all of our water bonds at a lower interest rate economically feasible?

Apparently the message from City Hall last fall, and what is really going on, are once again very far apart. In other words, we are about to endure a 61% water rate increase, yet our water bonds will remain rated mired at the same level of junk as before.

And because of this junk rating there will now be no refinancing at any lower interest rate. Nobody gives favorable interest rates for junk bonds. We will continue to pay nearly a million dollars a year in bond debt service, and much of it at the very expensive 2003 level interest rate of 5.3%.

That is not among the results we were promised by when our community leaders were campaigning to raise our water rates last fall.

Add yet one more cause for City Hall's credibility crisis.

http://sierramadretattler.blogspot.com

52 comments:

  1. Simply amazing.

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    1. I'm not surprised at all. This whole situation started with dishonest actions, lead to more dishonest actions and to a panic of more lies and creating a false public emergency to sneak a rate increase. We keep electing the same types over and over. Heck, last election we elected a dude who openly violated campaign laws when he photoshopped out police badges and used the SMPD in his campaign photos.

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    2. Now don't all of you folks that did not send in your protest ballots feel rather stupid. Once again all of you fools believed the City Hall lies. We will pay more nothing changes.

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    3. here come a few of them now
      http://tentmaker.org/blog1/wp-content/uploads/2011/07/jackasses.jpg

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  2. Once again things weren't thought through. Actually, perhaps they were thought through. There seems to always be a reason to do something that ends up probably not being the reason it was done. In other words, the ostensible reason that is used for taking a course of action is a reason that may sound palatable to some people like raising water rates to improve the bond rating. For these folks, any fallacious reason will do, just so long as more money goes from the taxpayers into the city's coffers to be spent for purposes that the taxpayers would not support had they been told the true reason in the first place.
    By the way, the water we do get from the Metropolitan Water Authority is so discolored my wife told me that she couldn't give my daughter a bath the other day.

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    1. It wasn't thought through. Most of our city council just votes the way Elaine Aguilar tells them to. Nancy, Johnny and Josh are very lazy people.

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    2. One resident had his water tested by a lab, and it was 13% rust.

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    3. Chloramines scour the rust from the inside of pipes. Imagine what it is doing to you.

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    4. Can tell the pee water from the clean water.

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    5. My water is crystal clear, what's your problem?

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    6. Dirty water, expensive filters, high water rates, dead lawn. Other than that everything is hunky dory.

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  3. According to the lightly traveled Gene Goss for City Council Facebook page, the taxer has received the endorsement of Bill Coburn. There is no such endorsement up on Coburn's site yet, but I am sure there will be. Gene just jumped the gun a little. Add this to Gene's endorsement by Neil the Pig and you can see why Tax Me Goss is high on the sty.

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    1. I sure hope all the loyal Tattler readers keeping up to date with the TRUTH here, will get out and vote for the only two candidates running that are qualified. RACHELLE ARIZMUNDI and DENISE DELMAR.
      Of course we all will vote AGAINST THE PHONY UTT TAX.
      Let's start right now, putting a majority of qualified honest people on our council.

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    2. Hmm. Neil the Pig, Rooster Coburn and Tax Me Goose. I sense a barnyard coalition coming together.

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    3. Oink! Cluck! Honk!

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    4. 7:41 I guess you haven't heard the whisper smear campaigns. Delmar and Arizmendi are actually pro-over development wolves in sheep's clothing. Or no, Delmar is, but Arizmendi isn't. Or no, they are both shills for John Crawford. No, not Crawford, they are shills for Walsh.
      This town can get a little car-cra around election times.

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    5. Mostly the work of a handful of crazy Realtors that seem to have an awful lot of time on their hands.

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    6. Crazy Carol and Toni Baloney.

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    7. I think some of the poor dumb bunnies are confused and think the blog is running for City Council. Please don't wise them up.

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    8. Gene Goss for City Council
      February 15
      I am pleased to have the endorsement of Neil Pig. Thanks, Neil!

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    9. Suddenly I have a real hankering for bacon.

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  4. How broke is our City? At least the City Manager can still sell bonds. If the City loses any of the many lawsuits how will it pay the damages? Issues more bonds.

    Off topic but about bonds and lawsuits.

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    1. What lawsuits. How can the city issue bonds to pay for them? The city has insurance, doesn't that cover some of the lawsuit.

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    2. The City will just declare Bankruptcy

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    3. Some members of the city councils and the city staff scream, "We are going broke right now! We will lose the police, we will lose the library! Right now!" That's when they want more of our money. When a resident says "Are we going bankrupt?", they chortle and say "No, don't worry, we are fine."
      That's the way it's been played for the last 15 years.

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    4. I vote for bankruptcy because all the union contract could go away.

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  5. There is a bright side. At least this way the City Hall mafia can't sell any new bonds. Moody's must have these guys figured, and knows the current bond holders will never get paid if our wild and crazy City Hall goes off on another bond spree.

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  6. I pray for more rain so we can have our water back. We're going broke. The added water rate increase and the cost of bottle water. At least we can cut the cost of the bottled water.
    VOTE: Vote No on the UUT

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  7. The current purpose of our city government is to give itself pensions and very generous benefits. It is just about all they work on now. We are being turned into a baby Los Angeles.

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    1. We pay them to work on their pension and benefits. Perfect!!!

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    2. They've decided you need to vote for a 25% utility tax hike. If you don't then you hate Sierra Madre.

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    3. The city is becoming like what they say happened to General Motors. They became an employee benefits company that built cars on the side. Likewise, the city government's primary purpose seems to be to dispense ever greater salaries, pensions and benefits to city employees and provide services to residents on the side.

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  8. I can just imagine the glee of whoever snookered the city into the disastrous 2003 bonds. We've got a live one!

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    1. The City Council snookered the City.

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    2. And they laughed as they did it.

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  9. I think a public apology from the councilmembers who got us into this mess is called for.

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    1. Those responsible for this disastor have been protected from public exposure by the city for years. Kurt Zimmerman's forensic audit would have lifted up the rock these incompetents hide under.

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    2. we can't even get the city to require it's outlet for publishing legal notices to provide documentation so why should we expect any level of sincerity and responsibility to the public

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    3. The city mangler gets $220,000 a year for working 4 day work weeks. That is pretty good.

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  10. Take the money away from city hall and all that's left is a small group of people with opinions. I am tired of paying so much and getting nothing but BS in return.

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    1. you can draw a stright line from Bart Doyle the building industry lobbyist (also investigated for corruption in another SGV city) to his line of supporters - Joe Mosca - John Buchanan - Nancy Walsh - Josh Moran - John Harabedian, Rob Stockley who graced us with their unmitigated wisdom on the Council to now that same group endorses Goss and Green

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    2. Obviously political inbreeding has severely depleted their gene pool.

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    3. Dirts are undergoing reverse evolution.

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  11. Didn't all five vote for this. Then three decide not to run again.

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  12. If all of the households that turned in Prop 218 water protests vote against Measure UUT, it will go down in flames. 2,000 votes in a 30% turnout is a lot.

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  13. John Buchanan still doesn't have a Noah Green sign in his yard. Neither does Bart.

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    1. John has gotten wise - he knows that we all don't trust him or anybody he supports but I guarantee you that he is a Green supporter - all his past supporters are supporting Green.

      John knows his name and reptuation are muddy and unwelcome. Still, we all know he's still working his shell game.

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    2. I disagree. I am hearing Green has become something of a pariah for the big dirts. He behaved stupidly and ruined their plans for this election. They are stuck with his overexposed ass, but they are not happy about that. Buchanan might be thinking a Green sign might reflect poorly on his wonderful self.

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    3. I disagree too, but for a different reason - Buchanan, for all the geniality he tries to imitate, is not the least bit fazed by any ill will he causes. My guess is that he is a true believer, that he thinks he's right no matter what, that he is wiser than the aveage person, that he has correct information and most other people are dolts. Yep. He will boldly declare for Green - want to bet?

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    4. Yes. I accept that bet. $5.

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    5. 2:04, you're on. We can communicate through the Mod.

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