Public Watchdog.org

Bond Rating Drop A Sign “Mayor No” Has Been Right (Updated 01.14.12)

01.12.12

Back on June 8, 2011, we published a post in which we referred to Mayor Dave Schmidt as “Mayor No” for his efforts to rein in irresponsible spending and restore fiscal integrity to a City government that had posted three straight years of deficits totaling approximately $6 million.

Schmidt caught plenty of flak from his critics, especially the special interests who didn’t much cotton to the notion that the City trough might be drying up.   But despite the first mayoral vetoes in memory, if not all of Park Ridge history, the aldermen of the previous Council – Joe Sweeney, Rich DiPietro, Don Bach, Jim Allegretti, Robert Ryan, Tom Carey and Frank Wsol – didn’t seem to comprehend the importance or the urgency of the City’s getting its financial house in order.

Instead, they raised taxes approx. 3.5% per year while keeping the spending spigot open.

They approved pay raises for City employees for no apparent reason other than it seemed like a good idea at the time, and/or other communities were doing it.  They threw arbitrary gobs of money – totaling hundreds of thousands of dollars a year – at private corporations (a/k/a “community groups”) who provided no transparency or accountability to the City for the money they received.  And they fattened the bankroll of Taste of Park Ridge’s private corporate operator, Taste of Park Ridge NFP (“Taste Inc.”), with more than $20,000/year of free City services, even as it became obvious Taste Inc. lied about being a not-for-profit when it was decidedly for-profit and pocketing undisclosed amounts of cash.

The new Council, unfortunately, has proved to be only marginally better so far.  Five of those aldermen have been in office a scant 9 months, however, so it’s still a bit early to lump them in with their predecessors.

But Schmidt’s uncompromising persistence had some positive effect: even those few vetoes which were sustained saved hundreds of thousands of dollars for the City – savings which manifested themselves in last year’s posting of an overall $2 million surplus, including (most importantly) a $35,000 surplus in the General Fund, the City’s operating fund where the fiscal rubber meets the road.

As we see it, kudos for that achievement go in no small part to new (in FY2010-11) Finance Director Allison Stutts, who not only brought an unprecedented level of professionalism to that office but also began conducting an aggressive review and analysis of the City’s financial operations.  The most notable result of those efforts was the discovery that the City was sitting on over $600,000 in uncollected fees and fines.

But it’s way too early to declare fiscal victory, especially if it such a declaration would encourage the return to the tax, borrow and spend ways that Schmidt had been battling alone since becoming mayor in May 2009.  Now, however, he seems to have an able ally in new Council Finance and Budget Committee Chairman, Ald. Dan Knight (5th); and they both benefit from Stutts’ finger on the financial pulse of City Hall. 

Stutts just presented the City Council with preliminary budget documents to initiate the 2012-13 budget process, which began with a meeting last night.  Those documents show a projected $37,000 deficit in the General Fund for FY2011-12, ending April 30.  With a little luck, the heretofore mild and snow-less winter might account for enough salt and manpower savings that, by itself, will more than cover that deficit. 

But there’s still a lot of winter ahead of us, starting with today’s expected snowstorm.  And there are still a lot of financial landmines that need continuing avoidance.

Much more troubling than that $37,000 projected deficit is the recent news that Moody’s just reduced the City’s bond rating one step – from Aa1 to Aa2, with a negative outlook.   The principal reasons given were all those past years of deficits in the General Fund, thanks in no small part to the multi-million dollar deficits rung up by the Uptown Redevelopment TIF Fund that the General Fund has had to cover. 

The practical effect of the downgrade is that any new City bond issues likely will need to offer investors a higher rate of interest, thereby diverting more tax dollars to debt service and away from essential services.  That doesn’t bode well for the taxpayers, especially given the big-ticket infrastructure projects like sewer repair and flood relief already in the planning stages.  That higher debt service could also make the City more vulnerable to deficits, layoffs, service reductions and further ratings downgrades – which, in turn, will increase pressure for more tax increases.

Can you say “spiraling problems”?

It should be noted that Schmidt was calling for spending cuts to bolster the weakened General Fund long before this unpleasant rating news broke.  The City Council, former and current, substantially disregarded those calls.  

Let’s see if they listen to Moody’s blues.

Update:  The following is the Moody’s opinion concerning the City’s bond rating downgrade.  For those of you who think this is all just a joke, note that the only two “Strengths” Moody’s identifies implicate the City’s ability to raise taxes because of its home-rule status and related exemption from tax caps.  Enjoy! 

OPINION

Moody’s Investors Service has downgraded to Aa2 from Aa1 the city of Park Ridge’s (IL) general obligation unlimited tax debt and assigned a negative outlook. Concurrently, Moody’s assigns a Aa2 rating and negative outlook to the city’s $5.4 million General Obligation Bonds, Series 2012A and $2.1 million General Obligation Bonds, Taxable Series 2012B.The Aa2 rating and negative outlook apply to $45.6 million of outstanding GO debt, including the current offering.

SUMMARY RATING RATIONALE

Secured by the city’s general obligation unlimited tax pledge, the Series 2012A bonds will finance capital improvements to the city’s sewer system as part of a larger capital improvement plan to reduce flooding. The Series 2012B bonds will fund the outstanding liability of the city’s Early Retirement Incentive program, as well as pay the city’s underfunded balance with the Illinois Municipal Retirement Fund. The downgrade to the Aa2 rating reflects the deteriorating health of the city’s General Fund, coupled with substantial General Fund support for other funds; large and mature suburban tax base with above average income levels; and a modest debt profile with an above-average repayment schedule. The negative outlook reflects the risks associated with the weakened liquidity position in the General Fund and the negative fund balances in the Uptown tax increment financing district (TIF) and Emergency Telephone Fund that require annual operating support from the General Fund.

STRENGTHS

– Large tax base with above average income indices advantageously located near Chicago border and O’Hare Airport

– Financial flexibility provided by the city’s Home Rule status

CHALLENGES

-Consecutive operating deficits resulting in substantial draw on General Fund reserves

-Deficit position in two funds that require ongoing General Fund support

Outlook

The negative outlook reflects the risks associated with the weakened liquidity position in the General Fund and the negative fund balances in the Uptown TIF and Emergency Telephone Fund that require annual operating support from the General Fund.

WHAT COULD CHANGE THE RATING — UP (or removal of negative outlook)

-Improved reserve and liquidity levels in the General Fund, Uptown TIF Fund and Emergency Telephone Fund

-Reduction or elimination of General Fund support to other funds

WHAT COULD CHANGE THE RATING — DOWN

-Continued draws on General Fund reserves, resulting in levels not commensurate with the current rating level

-Ongoing or increasing General Fund support for the Uptown TIF or Emergency Telephone Fund

PRINCIPAL RATING METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

To read or post comments, click on title.

28 comments so far

Moody’s blues… good one.

More seriously, this is disturbing but we have to hope that this will get the attention of the spendthrift Aldermen as well as their constituents who should be hammering them over their treatment of the public purse. As well, it better get the attention of the unions and other staff who seem to think the City apparently operates a money printing press in the basement of 505 Butler. They don’t.

Better days can be ahead but only if they/we act responsibly now that we have this alarm and call to action.

Now the City has the exact same Moody’s rating as Moody’s has given to every single issue of the City’s GO Bonds for the last 15 years? Oh Noooooes! The sky is falling! The sky is falling! The hysterical bloggers here are too funny.

EDITOR’S NOTE: Pointing out a negative economic development that will increase the cost to the taxpayers of servicing new GO bond debt is hardly “Chicken Little” activity, Anonymous – and that’s true even if we don’t call “b*ll sh*t” on you for a statement of purported fact that we have not been able to confirm.

318 sounds like Nero fiddling while Rome burns.

Or 318 sounds like Pat Quinn’s twin.

318, please point out the last time the City received a rating downgrade with a negative outlook. I won’t hold my breath.

Nobody is hysterical but it is time to wake up.

The Editor and 458 sound like idiots. Every bond issue from the City for the last 15 yrs. has carried with it a Aa2 rating from Moody’s. Now the City has a Aa2 rating from Moody’s for the 2012 bond issue. Nothing has changed. The Aa rating is still an excellent rating and considered low risk, and the short term cp is considered prime 1. The bloggers here just don’t know their butts from their bonds. They sure don’t know jack about municipal financing. If Finance Director Stutts made this sound like some big deal then she is playing the idiots in City government for fools.

EDITOR’S NOTE: So what you’re saying is: There’s no difference between Aa1 and Aa2; and, therefore, a reduction in the rating from Aa1 to Aa2, with a negative outlook, is meaningless? Or isn’t it even a downgrade?

Sounds like 3:18 is also 6:38. Must have been a former alderman (or mayor?) who made the mess in the first place.

EDITOR’S NOTE: Maybe one of the one-termers, or even one of the half-termers?

The blogger here doesn’t understand the City bond rating or the rating agencies current practice of downgrading thousands of municipalities last year and this year.

You tell the people that they should use google to look something up when they don’t know or understand something. You should follow your own advice.

Some of your posts are right on the money. This one was pathetic. You attempt at reporting the facts, and than you like to commentate and correlate items. If you don’t understand the reporting, don’t write an ignorant posting.

EDITOR’S NOTE: Gee, Zippy, did your Cheerios come with something other than milk this morning?

The fact of this matter should be simple enough even for you: (a) a downgrade is a downgrade; (b) the City will pay more interest on Aa2-rated bonds than on Aa1s; and (c) whether thousands of other municipalities are in the same boat or not doesn’t change (a) or (b). Didn’t your mommy tell you “Just because other kids jump off a cliff doesn’t mean you should”?

We did Google this and we found nothing that negated (a) or (b), above. Are you sure you aren’t using Bizarro Google, Zip?

I don’t see how anyone who has Park Ridge’s best interest in mind can view a bond rating downgrade with equanimity. Public Watchdog is absolutely correct about Allison Stutts being an asset to the City.

I still can’t understand why the city is going to issue bonds for millions for the sewer issues that only affect PARTS of the city. I live under the O’Hare runway, yet I agree that it is ridiculous to expect ALL the taxpayers to spend money on trying to fix a problem that only affects part of the city.
I have a hard time understanding why you, Mr. Trizna, support the huge sewer cost when it a) only helps some of the people and b) is not even guaranteed to work???
Why should I pay taxes for something like that? I have an idea – maybe you people should have purchased overhead sewers/sump pumps/ejector pumps…
While I empathize with the plight of those who get water in their basement, it is certainly not my problem, nor should it be the problem of Park Ridge.
I can’t understand why this editor supports it either when he is (apparently) a Tea Party believer in ala carte government.
Mr. Trizna – I look forward to your reply, but please make it one of your logical ones and not one of your replies where you resort to name calling and other childish antics. Those always puzzle me, as an avid reader of this blog, since you appear to be pretty well educated.

EDITOR’S NOTE “Name calling and other childish antics”? Shirley you jest.

As for this editor and/or this blog being “a Tea Party believer in ala [sic] carte government,” we aren’t even sure what that means, even if it were spelled correctly. And if it’s what we think it means, you’re the one who seems to believe in playing one part of town against another and not wanting to pay for what “is certainly not my problem, nor should it be the problem of Park Ridge.”

There is a clear difference between fighting O’Hare and fighting flooding, the major one being that the City can’t afford the kind of money it would take to defeat the forces arrayed against it and who support the expanded O’Hare. The City of Chicago alone probably spends more at Sam & Harry’s just on steaks for its lobbyists than Park Ridge can afford to pay the lobbyists themselves. But whether O’Hare is a problem only for parts of Park Ridge is well down the list of reasons why we don’t think the fight is worth the money.

We don’t recall a post on this blog stating that PublicWatchdog unequivocally “support[s] the huge sewer cost,” but please feel free to remind us of any post that did so. We have, however, objected to the City subsidizing the purchases of “overhead sewers/sump pumps/ejector pumps…” in several posts and in Editor’s Notes to comments supporting them.

We do believe, however, that flooding is something that can be successfully fought. Whether it’s a fight worth the cost will need to be publicly discussed and debated; and we look forward to that exercise.

I read your post and the following comments.

You really seem uneducated on the bond rating downgrade. Don’t you have any friends in the finance industry that could help you understand what Moody’s and S&P and Fitch rating agencies are doing and the reasoning behind it?

You are getting too defensive by comments folks are making. This was not one of your better blogging posts.

EDITOR’S NOTE: Pointing out that there’s a difference between Aa1 and Aa2 doesn’t qualify as “getting too defensive” in our book, but we can understand how you might think that’s the case given that the obvious appears to elude you.

Of course there is a difference between those two bond ratings, and of course it will cost the city more for bonds with the lower rating. Why this is even being debated is beyond me.

MR. Godfrey’s point about Ms. Stutts would be correct just by her discovery of all those uncollected fines. City hall could sure use a few more just like her.

EDITOR’S NOTE: We concur on all counts.

So, you don’t support fighting O’Hare (a standpoint I agree with, BTW) because “the City can’t afford the kind of money it would take to defeat the forces arrayed against it”, but you do support trying to take on the force of Mother Nature? Bravo, PubDog, you have officially outdone yourself.
I’m sure that the engineers of Park Ridge, as well as the people who will happily take my tax dollars, will have a very successful fight trying to reroute all that water. If you ever speak to a plumber/sewer specialist, they will tell you that the only solution is to dig up the entire city because the diameter of the sewers here will never be able to handle the rainfall.
But, perhaps they could spend the money on a giant fan to blow the rain clouds away from us.

Also, thanks for the spelling lesson. Sorry I missed a space. I guess I should have expected no less from you. I only hoped you could enter in a rational dialogue, but you love to have the last word, much like the blowhards I remember from grade school. Funny how a lot of them become lawyers…strange coincidence.

EDITOR’S NOTE: Hey, Zippy, what part of “[w]e don’t recall a post on this blog stating that PublicWatchdog unequivocally “support[s] the huge sewer cost” and “[w]hether [flooding is] a fight worth the cost will need to be publicly discussed and debated” don’t you understand?

We’re always ready to enter into a “rational dialogue.” When you find somebody else who is, send them our way.

Ah, running away from the argument, as usual PubDog . Must be nice to always get the last word.

Maybe some day I will get my own blog so that I can avoid any rebuttal and make sure to get the last word in all the time. Perhaps then I can be the Mayor’s trained little pet monkey, too. I wonder if the residents will all laugh at me behind my back as well.

Someday, I hope…

EDITOR’S NOTE: Hate to break it to you, Zip, but you don’t have the initiative for anything more than some occasional half-baked carping here. And you don’t even have to thank us for the therapy.

Considering everything he has said about the PR financial situation and considering your hypothesis presented about the bond rating, I would LOVE to see the Mayor explain how he could support floating the bonds necessary to do the project they have defined. Especially considering that, as defined, it would provide releif to a very small percentage of residents who experience flooding.

In your post of 7/26/11 you mentioned and even seemed to encourage a referendum on this issue in March. Do you still support a referendum?

EDITOR’S NOTE: We always support referenda, but only when the issues are framed in an straight-forward, honest and unambiguous manner. As you may recall, we supported Joe Egan’s police station referendum in 2009 but not then-Ald. Frank Wsol’s version because the former was and the latter was not.

I have been reading this blog for quite some time now and I have a question. Is there anything that the Mayor does that you DO NOT agree with? I am so used to seeing you support everything he does, but I rarely, if ever, see anything that you disagree with.

EDITOR’S NOTE: We’ve disagreed with the mayor on occasion but, generally, our views on issues and policy seem to be similar to his.

In the typical fashion the bloggers here seize a single point and take that out to the extremes. The City has always had its bonds rated Aa2. Every bond issue for the last 15 yrs. has gotten an Aa2 rating. Now the City’s underlying rating and the 2012 bond issue have the same rating, Aa2. If Finance Director Stutts can put a lid on her personal ambitions, stop kissing the Mayor’s butt and answer real financial questions for a change then maybe she might be an asset to the City. I haven’t seen anything other than a young woman pretty eager to please the person or people she thinks will help her get ahead. If some dire sky is falling warning was given to the Council from Ms. Stutts about this sky is falling nothing of a downgrade then she should be fired for being an idiot. Like someone blogged here above, the bloggers here should Google for better information before making ridiculous statements about the bond markets and CRAs in the current economic climate. The Mayor should try to do the same thing before he gets herded like some wet cat into a panic about the Moody’s nothing of a downgrade.

EDITOR’S NOTE: Sounds like somebody’s got some self-esteem problems, and/or a big burr under his/her saddle.

Okay, let’s try this again: the rating was downgraded from a higher to a lower level, which will cost the taxpayers money. If you think that’s a good thing, just say so.

As for Ms. Stutts, from everything we’ve seen she’s going a great job for the taxpayers. If that’s a product of “personal ambitions,” we’ll take it any day. And we haven’t heard any “dire sky is falling warning” from her, or anyone else – just a legitimate concern about a negative financial event.

This is for 10:21PM:

http://www.lmgtfy.com/?q=Moody%27s+rating+of+Park+Ridge%2C+IL&l=1

Here is a picture on the bond rating agency negative outlook, since you seem either not wanting or unable to answer the comments posted here. First, by law, the city has a cap on how much they can raise the tax rate to property owners. Unfortunately property values continue to decline. The technical problems of foreclosure are now past us, and the foreclosures in P.R are expected to go back to 2009 levels. The real estate bottom projected on BLS website (or it maybe another governmental website) is another 25-30% based on region. The City of Park Ridge will not be able to raise rates high enough because of the cap to offset the decline in property values, meaning the amount of property tax for the next three years collected by/for P.R. will be lower. This is one aspect of the negative outlook.

There are also pension liability funding, business opening / closing projections, return on investments, inflation rates, etc., and the City Budgets and Actual results that the rating agency looks at.

When Moody publishes the downgrade, read the detail. One of the highlights and important points for the determination of the issuance will be property values and property tax.

Remember how you took things at face value regarding the person in charge of the Senior Center, and everyone told you to wait until more information came out??? Same issue here. You are reporting information without the detail of the why?

EDITOR’S NOTE: “First, by law, the city has a cap on how much they can raise the tax rate to property owners” is simply wrong, so we’ll discount the rest of your comment accordingly. See the Update of this post.

To 633AM, I am not sure of the point you are trying to make but you say: “The technical problems of foreclosure are now past us, and the foreclosures in P.R are expected to go back to 2009 levels.” Really?!? Love to see what you site as you source for that.

You seem to be agreeing that this downgrade with a negative outlook is a bad thing. And it is. To make the argument that this is a non-event is simply wrong.

As someone said earlier hopefully the City staffer, elected officials and citizens will see and hear about this and take it as a wake up call.

Here is something for 625 and the bloggers here who don’t know how to properly use Google. http://www.moodys.com/credit-ratings/Park-Ridge-City-of-IL-credit-rating-600024448 It is the historical ratings for Park Ridge. You will see the bonds issued by Park Ridge for the last 15 yrs. have all had Aa2 ratings. Now the City also has an Aa2 rating, downgraded from Aa1. Why would that be? Because the Mayor has pushed a new borrow and spend policy for his pet sewer project that isn’t guarantied to work but he wants it anyway. Moody’s and the other CRAs are downgrading almost everything in the current economic climate because they got caught with their pants around their ankles with the Aaa ratings of things like Lehman Brothers and the MBSs and CDOs right up until those firms went bankrupt. Now the CRAs are issuing almost blanket negative outlooks. The City’s underlying downgrade is a result of the Mayor’s wanting new bonds issued for the sewer project. His push has increased our debt to liquidity ratio and caused the underlying credit downgrade. But the bond issue for 2012 will carry the same Aa2 rating as every bond issue from Park Ridge has for the last 15 yrs. The Mayor and the bloggers here are just doing more of the same panic peddling they’ve done the last three yrs. Without being able to sell panic to the people the Mayor and bloggers here wouldn’t have any way of pushing their agenda.

EDITOR’S NOTE: To paraphrase Wolfgang Pauli: “Not only are you not right, you’re not even wrong!” – as shown by the Moody’s explanation of the City’s bond rating downgrade in today’s “Update.” What is it about the term “downgrade” that you can’t comprehend?

105pm…can I have some of what you are smoking?

EDITOR’S NOTE: You really don’t want any.

This is mind boggling. Bond rating goes down, Moody’s rips Park Ridge for the TIF and low General Fund balance, and some of these jokers are blaming Schmidt and Stutts for panic peddling? Wow, talk about clueless in Park Ridge but trying to hide it by throwing around acronyms (“MBSs,” “CDOs,” “CRAs”) like they actually know what they’re talking about.

We’re paying the price for the foolish TIF and the overspending by prior councils. I’m just glad that we’ve finally got officials with common sense like Schmidt and Stutts to deal with this situation.

EDITOR’S NOTE: We’re not aware of anybody “panic peddling” anything, but that doesn’t seem to stop the folks who don’t seem to understand ratings downgrades.

Glad you posted the detail of the rating with your update. I wish you would have down that in the first place.

EDITOR’S NOTE: We’re glad one of our contributing researchers was able to get it. But we doubt it will change the opinions of those commentators who think the downgrade is irrelevant because our previous bonds were rated Aa2.

1033…To be clearer, we are paying the price for the foolish TIF that the City partnered in / guaranteed. Now that was foolish.

EDITOR’S NOTE: We particularly liked the “partnership” that didn’t allow the City to see or audit PRC’s (the developer’s) books. Brilliant!

It may be true that Park Ridge city bonds have always been rated this way. Most of the past 15 years (if that is an appropriate tie period), however, haven’t seen the modern scrutiny we’re putting on government budgets and other obligations. Budget deficits, excessive bond issues and impossible pension promises are all now looking pretty scary. Maybe it’s not fair to call this latest downgrade a “crisis” on its own, but we’d be foolish not to see it as part of the entire picture. Folks, we have to make choices. Start cutting sacred cows from municipal spending. The old rules no longer apply. An Aa2 rating is much scarier than it was in the 1990s.

It’s sad but funny how far people will go to defend this panic peddling. Whine about acronyms because they can’t keep up with the conversation. Concede the bond ratings haven’t changed, only the underlying rating but refuse to accept it’s the Mayor who wants to add debt that is the event that triggered the underlying downgrade. Insist everything is so much scarier now even though the City’s bonds are rated exactly the same as they’ve been for more than a decade. People who know a thing or more about financial management know not to take advice from this blog or Mayor Schmidt. Mayor Schmidt with all his dire predictions of financial disaster hasn’t been right even one single time about anything he’s predicted for the City’s finances. Mayor Schmidt doesn’t even have the predictive accuracy rate of a broken clock. I hope the rest of the Council, besides the glorified bookkeeper from the 5th ward, has more on the ball about financial management than Mayor Schmidt who seems to get his financial advice from the bloggers here. That’s the funniest bit of it all.

EDITOR’S NOTE: Zippy, you’ve really got to learn that when your Cheerios smell like asparagus, it’s probably not milk in the bowl. Or is it just that you bet big on the Packers?

Anon 1.15.12 8:51 PM: It seems your comment, above, was meant as a reply to mine (“concede the bond ratings haven’t changed”). If you read my comment a little bit closer, you’ll see I have no argument about personalities. For some reason you read my comment as a defense of the mayor. Actually it was a defense of the taxpayer. I’m not sure what you meant by “panic peddling” but all I know is that my taxes keep going up and the government keeps on asking for more. The Moody’s report helpfully points out that Park Ridge can either raise taxes or cut spending. I’m really hoping they cut spending. I wonder what you really want? Raise taxes or cut spending?

EDITOR’S NOTE: What Zippy really wants is to beef about this blog, the mayor, anti-tax, borrow & apend policies, and anybody who supports any of the first three – all while avoiding answering tough questions like your’s, or our’s about whether Aa2 is no worse a rating than Aa1?

And just wait. When they get to the part of the budget where it is time to talk about community groups and the related tax payer funding of same, Zippy and his friends will see no end to the need for that. There is always an unlimited supply of other people’s money! Who cares about rating agency ratings or outlooks?



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