Sunday, May 17, 2015

Moody's: Sierra Madre Water Bonds Remain At Junk Level

Ba1: More bad bond news this week.
Sierra Madre's water woes go deep, to use a word that might not be completely appropriate. Maybe we should say they go shallow because we don't have very much of the stuff. But always looming behind any story about this community's water woes is its enormous water bond debt. Something that consumes an awful lot of the town's cash resources.

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."

I miss Brian Charles. This was all before our water started changing colors, of course. And I think that if Sierra Madre were to somehow ever get back to that 2011 Moody's A rating today, which seemed so bad in 2011, they'd be turning cartwheels downtown.

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).


In other words, Sierra Madre's so-called "water enterprise" remains a junk bond basket case that only continues to exist because of the tax money and repeated rate increases residents are forced to pay to prop it up.

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.

sierramadretattler.blogspot.com

40 comments:

  1. We need a better city manager, one that knows what they are doing. One that works for the community not for development.

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    1. I am strongly in favor of maintaining the City Infrastructure, especially the water mains.However I am adamantly against spending a penny when we continue with the incompetent Inman and devious Aguilar as Director of Public Works and City Manager.
      Like many other residents,I have no confidence in either of them ,or their underlings.
      The astonishing issue is that they are still employed by the City with no blemishes on their record. That is the real issue - weak Council who fail to hold these cosseted employees to any reasonable performance standard.

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  2. our water rating may not be the best but our staff pension plan, insurance and other perks are some of the highest

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  3. Were we told the 2014 water rate increases would give the city an improved bond rating? It doesn't seem to have worked.

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  4. The problem here is that a Ba1 junk rating makes it impossible to refinance these water bonds. We continue to pay a very high interest rate of over 5% that were were locked into by the Doyle era geniuses that got us into this mess. Today;s rates are far lower yet we cannot take advantage of that because of that awful Moody's rating.

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    1. The ratings are awful because Moody says the taxpayers constantly grousing about the debt and refusing to comply with the terms of the bonds. And the government doesn't appear to have the balls to tell the taxpayers that they have to pay what's been signed. Raising water rates the way we have, with lots of complaining and hesitancy, means a terrible bond rating, which means we pay high interest on money when we need it.

      This is why poor people stay poor. This is why Sierra Madre is steadily swirling down the drain hole. Because nobody, including everyone complaining here, actually bothers to figure out how to properly manage the town.

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    2. Dude - it was not the ratepayers that racked up $19 or so million dollars of bond debt. A figure that includes the ridiculous amount of interest we will be paying until the 2030s. Climb out of your tree and leave the squirrels alone. Don't blame the victims of bad government.

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    3. The bonds paid for the earthquake proof reservoir and for the MWD pipeline that delivers us water while our well is dry. The ratepayers don't want to pay more money, so if you think they would pay for those things up front then I have some other things I'd like to sell you. If you don't think needing access to MWD water in a drought and having water during an earthquake is important, then great. Great long-term planning skills. The bond payment isn't stupid, and the things the bond money bought weren't stupid. And the screaming about why other cities don't have these expenses is stupid, because if you look at those cheaper cities, all of them are having to earthquake proof their reservoirs but the Feds don't have the money anymore to help them (like they did us). So they're looking at insane rate hikes. Who-hoo! And every city uses interest bearing bonds. Because that's how people can afford to pay for things. Over time. Not up front. And apparently people don't loan you money without charging interest. And apparently if they charged interest up front, you'd have to pay more for your water, but they'd have to do a special election to convince you, and apparently ratepayers are fond of voting no, and apparently it costs a lot of money to run these elections, so really.... it's stupid. The difference between regular interest payments and delayed interest payments is miniscule. Certainly not 19 million dollars. As this blog well knows.

      The stupid screaming about the current budget covers all the wrong points. You got a new paramedic program and you gave your cops a raise. You got a UUT to pay for those things. The state government went bankrupt and took a bunch of other money that might've paid for those increases. That stuff is gone, and you still have a new paramedic program and increased cost of cops. You don't want to pay more money, so you have to cut something.

      The previous era told you that everything would pay for itself somehow and the UUT could sunset? Well, here we are. The 2% isn't worth paying to keep whatever it is that is going to be cut. So what isn't worth it? Everyone says "healthcare and pensions" Ok, where is that? Because I'm not seeing a million dollars. I'm seeing a choice of cutting the paramedic program, getting rid of the libary, or outsourcing the police. That's it.

      "I'm a victim of bad government that gave me a paramedic program, that cost more money. Boo-hoo, now that I realize I have to pay for it, I don't want to cut it but I still don't want to pay for it."

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    4. The MWD pipeline was paid for by a loan from the SGVMWD. It had nothing to do with bond money. It came much later. The 2003 water bond $6 million has been turned into $15 million in bond debt by the decision made by some very stupid people to only pay the interest on this debt until 2019. So now we have to add an additional $9 million in debt to that and pay for it well into the 2030s. I don't care what they bought with it, that was just plain stupid. Outsourcing the cops is equally stupid. All you need to do with those yo-yos is just cut them back a little and set loose a few of the fat ones.

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  5. Heard one council member say that we need to fix all the ifrustructure and assess everyone a fee until the debt is paid off. This is another way of say a BOND?

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    1. Who said that? Was it brought up an one of the city's resident input meetings?

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  6. Vote down ANY and All Tax hikes.

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  7. Its no wonder,

    It is just a matter of choice!

    City Hall borrowed $1,000,000 from Tom love's company, city hall failed to even make a payment, now by letter - city hall asked that the $1,000,000 of debt to be removed!

    but our city manager hires 3 more city employees at a cost of $500,000 per year!

    Nothing makes sense!!!

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  8. Once again, it is proven that more money is never the problem. For most city governments, its always a bottomless pit. I don't care how much money they take out of taxpayers' pockets - it will never be enough. Spending is what has to be controlled.

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    1. We do not have personnell at city hall right now who are capable of fixing these problems.

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  9. Even back in 2011, The Tattler was breaking stories. At least some things haven't changed.

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  10. For the record, there is nothing about this latest Moody's mess in either this week's City Manager's Report or the Mountain Views News. Our so-called newspaper of record. Until the Tattler picked up on it this story was for all intents and purposes suppressed.

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    1. Was the City Council even told?

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    2. Apparently not. Or at least not all of them. Who works for who in this town?

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  11. 9:11 Please comment further on the $1,000,000 borrowed by the city from Tom Love's company. What is the name of his company? How does he represent the city on the water board without conflict of intrest if he has a company with financial gain involved?

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    1. It was borrowed from the MWD to help Sierra Madre hook up with their lines. Not a personal loan from Tom. They have also allowed Sierra Madre to defer repayment until we get our act together. Should be a long wait.

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  12. Lousy water. Lousy bond rating. Lousy city management team.

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    1. Moody's doesn't take water quality into account. Probably a good thing, at least on a financial level.

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    2. The only liquidity Moodys cares about is cash flow.

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  13. Nice to see John Buchanan's "blame the residents" approach in that Star News article. Atta boy, Bucky!

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  14. Where in the Budget Road Show handout or the Town Hall Meeting notice does it show how much money is spent on paying the interest only on the bond debt each year? And is it true these payments started 16 years ago and will continue forever if principal is never paid down?

    One more question. What were the several million dollars raised by the bond sale used for. Just curious. I moved here 3 years ago. Not familiar with the reason for the bond sale.

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    1. Your reading assignmentsMay 17, 2015 at 11:59 AM

      http://sierramadretattler.blogspot.com/2014/01/is-moodys-functioning-as-debt-collector.html
      http://sierramadretattler.blogspot.com/2010/10/2003-sierra-madre-water-revenue-bonds.html
      http://sierramadretattler.blogspot.com/2014/01/last-chance.html

      2003 water bonds were $6M. By making interest only payments to the end of this decade that debt balloons to $15M. Is this a new definition of insanity?

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    2. Thanks 11:59

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  15. Buchanan forgets that MaryAnn came up with a great proposal but the Council voted it down because it was MaryAnn. It would have necessitated another 218 process but, as she said, If the people know and trust what is being asked of them, they will support it.

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    1. It was MaryAnn versus Bucky, Mosca, Moran and Nancy Pants. The 4 Fools. How much worse could it get?

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    2. It all comes down to trust. People are skeptical of the latest budget meetings because they don't trust the city to come clean once again about the need for a modified UUT. Their dog and pony shows give facts and figures, but no analysis of them.

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    3. The lack of transparency is what is killing this. It makes people wonder what else is being hidden.

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  16. Inman and Aguilar need to be fired. Now!!!

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  17. When Moody's talks about $12M in bond debt, they're talking pre interest, right? The interest on the $6M in 2003 interest only debt is not figured in, am I right?

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    1. Yep. Those are the numbers.

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  18. I thought bonds had to be voted for. Was that done? Has anyone written a council member about this?

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  19. just like our mayor josh stated to a sierra madre resident, out side city hall on the public sidewalk, everyone who speaks at the city hall microphone is a __hole!

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    1. The nasty Civility Party acquitted itself quite poorly when it was in power. Now every single one of them is gone. One fled the country, and two didn't even bother to run for reelection. All that is left is a city desperately in need of rescue from their stupidity.

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  20. Maybe Earl and his team should stand outside the Budget Town Hall Meeting and gather signatures

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    1. Good idea. He should also stand at public comment and let everyone know he'll be outside ready to accept autographs.

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