Moody’s Investors Service Tuesday downgraded Gulfport, Miss.’s underlying general obligation debt rating to A1 from Aa3.
The rating action affects approximately $24.4 million in parity debt rated by Moody’s.
“The downgrade to A1 reflects the city’s large tax base that has experienced fluctuations in recent years, a trend of imbalance in financial operations, [and] a narrow financial reserve position with minimal liquidity,” said Moody’s analyst John Nichols.
Gulfport is located on Mississipi’s Gulf Coast, and has about 69,000 residents.
Since fiscal 2007, Gulfport has experienced general-fund operating deficits driven mainly by declining sales tax collections and the use of reserves for one-time capital projects, according to Nichols.
The city has $15 million of expenses related to Hurricane Katrina projects that have yet to be reimbursed by the Federal Emergency Management Agency.
To keep interest payments low, the city used $10 million of general fund liquidity and financed $5 million as a short-term note from a local bank to bridge the funding gap for the projects.
“Liquidity maintained in the general fund has been significantly impacted by the capital projects and delayed FEMA funding,” Nichols wrote.
Unaudited fiscal 2012 figures indicate another deficit of $1.3 million due to rising expenditures and stagnant revenues. That would decrease the general fund balance to $3.9 million, or 7.4% of operating revenues.
“We believe the current weak liquidity of the city is a certain credit negative and reflected in the rating downgrade,” Nichols said.
“Given no immediate plans for additional borrowing, we anticipate the city’s debt burdens will decrease over the medium-term given the above average principal amortization,” he added.
