Jackson, Miss., Gets Two-Notch Downgrade

Mississippi State Capitol

BRADENTON, Fla. — Mississippi's capital city took a two-notch downgrade from Moody's Investors Service.

The rating agency cut Jackson's general obligation bond rating to Baa2 from A3 Wednesday.

The city's "failure to increase revenues" has resulted in years of structural imbalance, Moody's said.

Moody's also downgraded to Baa3 from Baa1 the Series 2011 special obligation bonds issued by the Jackson Redevelopment Authority and secured by an unconditional pledge of the city's general fund. The city's water and sewer revenue bonds were dropped three notches to Baa3 from A3, affecting $227.9 million in rated debt.

The outlook remains negative for all bonds, Moody's said.

"The downgrade of the general obligation rating reflects the persistent and significant contraction of the city's reserve and liquidity position driven by continued operational imbalance," said analyst Kenneth Surgenor.

The GO downgrade also considers "the city's weak managerial response to a multiyear trend of structural imbalance demonstrated by a failure to increase revenues despite significant legal flexibility to do so and the inability of management to articulate a plan to balance operations in the near term," he said.

The rating also reflects the city's large and stable tax base with institutional presence and economic concentration, weak socioeconomic indicators, and elevated pension liabilities.

The lower rating for the water and sewer bonds reflects deterioration of financial performance in fiscal 2016 driven by the persistent under-collection of billed services, Moody's said.

The downgrade also reflects "the expectation for continued financial challenges due to inadequate rate management practices and the long term pressures on the system's finances stemming from mandated outsized capital needs," Surgenor said.

The city received a clean audit for fiscal 2015. It said the city remained financial stable although it experienced a drawdown of unassigned general fund balance.

The city has taken steps to "redefine" core services it offers beyond public safety, water and sewer, and infrastructure such as streets and bridge management, according to the audit, and is also exploring additional revenue streams, such as adding parking meters, monetizing certain assets, and private management of facilities.

A hiring freeze is in effect. One day a month furloughs for employees began last October.

On July 12, S&P Global Ratings downgraded the city's GOs to A-plus from AA-minus, and said the outlook is negative.

S&P cited weaker-than-projected budget performance and flexibility in fiscal 2015 and anticipated continued softness in fiscal 2016 "despite the city's initiatives to reverse its negative budgetary performance."

The negative outlook reflects a one-in-three chance the rating could be lowered multiple notches in the next year "if the city's financial position weakens further should there be a larger-than-anticipated draw on available reserves or if the city is unable to develop a credible plan to restore structural balance," said S&P analyst Oscar Padilla.

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