|Ba1: More bad bond news this week.|
This week Moody's once again assigned a "Ba1" junk level rating to Sierra Madre's water bonds.
Of course, the steady ratings decline of Sierra Madre's water bonds has been an ongoing story here for years, and does from time to time occasionally attract some attention. And actually this whole water bond ratings disaster has quite a colorful history in town. One that has had a substantial effect on such important issues as the high levels of money we are paying for water. A good example of which would be the following Pasadena Star News article from way back in October of 2011 (link).
Moody's drops Sierra Madre water bond rating
By Brian Charles, Staff Writer
Posted: 10/06/2011 10:34:26 PM PDT
SIERRA MADRE - Credit rating agency Moody's downgraded the city of Sierra Madre's Water Enterprise bonds from AAA to an A bond rating due to insufficient water rate revenues, according to a report by the credit agency.
The downgrade does not affect current indebtedness or bond payments and Sierra Madre officials said Thursday the second year of an incremental rate hike approved in early 2011 will serve as the remedy.
"The bonds will be re-evaluated in another year, and assuming the revenue estimates and the revenues that rate payers are paying, we will regain our triple A rating," said Elaine Aguilar, Sierra Madre city manager.
Last year, rusty water pipes were paraded through Sierra Madre City Council meetings in an attempt to rally support for rate hikes. City officials said the hikes were needed to upgrade 2.95-square-mile city's water system that supplies water to less than 11,000 people.
City officials pitched the rate hike as necessary to keep the water system from falling apart and said nothing about a bond rating or bond indebtedness, according to John Crawford, resident and blogger for the Sierra Madre Tattler, who broke the story on his website early Thursday morning.
"When they first packaged raising the water rates, they pitched as the pipes were broken and the pipes needed to be fixed," Crawford said. "They didn't say it had anything to do with bonds."
It didn't take much detective work to discover the real issue was pulling in enough revenue to keep credit rating agency from dinging Sierra Madre's bond rating and making moves such as refinancing bonds next to impossible, he said.
"Later on Sierra Madre residents discovered that this was about the bond covenants," Crawford said.
Sierra Madre city officials switched tactics and repositioned the rate hike as necessary to satisfy credit agencies, but the public outcry had grown intense - there was massive opposition to the rate hike and the increase was challenged legally with the city eventually emerging victorious, he said.
The political scuttlebutt forced the City Council to hedge on a full-scale rate hike.
Instead of spiking rates high enough to meet the bond covenants requirement of 120 percent of funding for this year, the city slowly rolled out the rate increase and won't meet the revenue levels needed to satisfy credit agencies such as Moody's until 2012, Sierra Madre Mayor John Buchanan said.
"You trade-off coming fully up to speed on your bond covenants right away, against the need to bring your people along slowly ... and not hitting people with the increase right away," Buchanan said. "Of course the first proposal in front of us was for a steeper increase, but there was a second issue, the residents were opposed to a steep increase and we have a fair number of senior citizens on a fixed income."
Crawford blasted city officials Thursday for the quagmire left by not being forthcoming on the bonding issue from the beginning and a failed plan to keep the city from being downgraded.
"We pay more money and we still don't have a triple A rating."
But I digress. You do remember when City Hall lied to us about their reasons for a water rate hike, right? As described in that Star News article? When the city tried to convince you that it was all about repairing old pipes, when actually it was to cover the costs of some monumentally bad bond debt?
If you need a little refresher course, check out an oldie but goody called "The Real Water Rate Misinformation" (link). It remains the #1 most viewed article ever on The Tattler.
So despite the wildly inappropriate optimism from the City Manager, plus the real reason for the ensuing water rate hikes (which we were eventually told about thanks to this blog), Sierra Madre never did get its AAA rating back. As a matter of fact, water rates have gone up several times since, and oddly enough our bond ratings have still spiraled deeper into the bleak nether regions of the Moody's ratings chart known as junk.
Or exactly the opposite of what we had been told would happen when water rates were increased.
An example of that misinformation would be this October 2011 story in the Mountain Views News which claimed too low water rates were responsible for the city's bond rating debacle.
Anyway, when you consider that this city continues to do stupid stuff like paying only the interest on our 2003 Water Bonds, and at an unnecessary additional cost of approximately $9 million dollars in debt service that is coming straight out of your pocket, it all starts to make perfect sense.
Last week Moody's once again reconfirmed Sierra Madre's junk "Water Enterprise" bond rating (link). This despite all of those water rate increases.
In case you are wondering where a Moody's "Ba1" rating puts us, here is some helpful information provided to us by this bond rating service.
This chart comes from Wikipedia (link).
So how did we get to this point? Do you remember something called the "Downtown Specific Plan?" That had a lot to do with it. To put it into current Sierra Madre argot, these bonds were all about paying for water infrastructure such as water storage tanks, needed to support a failed large scale downtown mixed use development project.
It has always been about development and money, you know. Maybe we should get back into that story again some day soon. It kind of is Sierra Madre's "crime of the century." And not all that different from some of the bad things that are going on in town today.