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Washington’s bond rating drops

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The city of Washington’s bond rating recently dropped two notches, from A to BBB+, by Standard and Poors Global Ratings, due to “significantly weakened liquidity.”

According to S&P’s credit profile analysis completed last month, the city’s “available cash” has decreased by about half since 2012, and is now about 5.2 percent of the city’s expenses and 38.2 percent of the city’s debt service.

Washington Mayor Scott Putnam said the city probably won’t be affected by the ratings change, which increases the interest rate the city must pay on any new borrowing.

“We don’t have plans to borrow any more money so it shouldn’t affect us,” he said.

Joseph Thomas, director of the Washington City Parking Authority, said the same thing, as the authority’s rating also dropped by the same two notches. Thomas said he believes the authority’s rating was lowered because the city is the guarantor on the authority’s debt if the authority fails to pay it back.

“There is no practical effect because we’re not planning to borrow any more funds for additional projects,” Thomas said.

Thomas said the authority borrowed more than $3.2 million around 2005 to build the parking garage on Franklin Street. He said that debt is expected to be paid off in 2030.

According to S&P’s report, the lowered rating was based on the city’s “weak” economy, budgetary flexibility, liquidity and debt liability position.

It states that the city’s projected per capita effective buying income is 78 percent of the national level. It also references a high unemployment rate of 6.2 percent in 2016, higher than the state’s 5.5 percent and the nation’s 4.9 percent.

The report states the city’s cash, or fund balance, has declined each year since 2012. It states city officials used reserves in 2016 to pay for “unexpected one-time capital projects.” It also references the city’s debt service, at more than 13 percent of the city’s expenses, and it’s net direct debt at more than 70 percent of its revenue.

The report also references legal fees in 2017 and a large pension program for firefighters, police officers, and employees that took up more than 23 percent of the city’s expenses in 2016.

“While the largest plan is 93.8 percent funded, with pension costs accounting for more than 20 percent of the budget, we believe pensions remain a cost pressure for the city,” the report states.

Putnam said the city has made progress with its pension funds, going from under 50 percent funded in 2008 to more than 90 percent funded presently.

“We have one of the better-funded pension plans in the state,” he said.

Aside from the cited “weaknesses,” the report suggested “adequate” management and budgetary performance from city officials.

“We recognize that they are also being very cautious with spending and that they plan to continue to monitor spending in all departments,” the report states.

City council decided earlier this month to participate in the state Department of Community and Economic Development’s early intervention program. They will use state grant money to have a study done, looking at the city’s budget and making suggestions for cuts and additional revenue.

“We’ve been making great management decisions,” Putnam said. “Our budget is sound, we just got hit with multiple situations that were just out of our control.”

S&P said in the report it doesn’t expect the rating to change during the two-year outlook period, unless performance and operations either improve considerably or continue to weaken.

“We believe management is taking some necessary steps to balance operations during the next two fiscal years,” the report states.

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