LOS ANGELES — Moody's Investors Service said April 9 that the deteriorating fiscal situation in North Las Vegas increases the likelihood of state intervention.
The city of 222,000, which has junk ratings on its bonds from all three rating agencies, has been battling fiscal challenges for several years.
The bonds are rated B, Ba3, and BB-minus by Fitch Ratings, Moody's Investor's Service and Standard & Poor's, respectively.
All three rating agencies assign negative outlooks.
Two adverse judicial rulings have compounded the city's problems, according to the Moody's report.
The state's Supreme Court on March 21 rejected the city's appeal of a $4 million judgment related to land the city had planned to condemn and redevelop. That ruling comes on top of another adverse ruling on Jan. 21 from Nevada District Court Judge Susan Johnson, who ruled in favor of labor unions in a $25 million lawsuit.
The city has offered a $7.7 million settlement, Moody's analysts said, but union leaders have not indicated whether they will accept the offer.
The city had frozen city workers' wages for two years through a declaration of emergency. The labor unions sued seeking retroactive pay for raises that officials had agreed to before the recession struck.
The state has provided some oversight through its Committee on Local Government Finance, but Fitch analysts said in a report issued last week that the state has not indicated any interest in state receivership.
The adverse court decisions could significantly increase North Las Vegas' projected budget shortfall, according to Moody's.
Officials previously forecast a $24 million budget shortfall, representing 15% of revenues, in operating funds for the fiscal year starting July 1, before incorporating any judgment payments, Moody's said. Management presented an alternative gap-closing plan based on broad spending cuts of up to 20% if unions do not accept the discounted settlement.
Under a severe financial emergency, Moody's said the state would take over management of the city. The state could also provide technical financial assistance to review and consult on operations and debt administration. Nevada law does not authorize local governments to declare Chapter 9 bankruptcy.
There are few prior instances of state takeovers in Nevada, and only for smaller entities, according to Moody's.
The city council will present the tentative budget to the city council on Thursday. Cities are required to submit a tentative balanced budget to the state by April 15.
"We expect officials to make deep spending cuts to balance the budget as required by state law," said Moody's analysts Patrick Liberatore and Dan Steed in their report. "Management may negotiate significant labor concessions, further reduce municipal services, or increase property taxes to alleviate diminished revenues."
