DALLAS — The rapidly growing South Texas town of Pharr needs to update aging infrastructure but years of financial mismanagement have led to a low investment-grade rating with a negative outlook.
In a report to the City Commission last month, current finance director Juan Guerra presented numerous memos from past finance officials showing decades of negative fund balances, negative cash flow, and transfers from one fund to another to cover expenses.
One June 1992 memo from the then-finance director to the city manager read: “Please be advised that $200,000 will be borrowed from the meter deposit bank account by the water fund in order for the water fund to meet payroll and other pending obligations.”
The report also showed officials were late with the annual audit for 18 years straight from fiscal 1990 through fiscal 2006.
Guerra assumed his post last July. He said he’s the first certified public accountant hired by the city and the financial missteps were “just the way they did it down here … and it’s screwed up.”
He said the commissioners and other city officials have been “very receptive” to his analysis and recommendations. He expects it will take a few years to get the finance department operating “efficiently and at full potential.”
Guerra and city manager Fred Sandoval aim to build the city’s fund balance to “at the very least [two] months of budgeted operating expenditures for governmental funds and [three] months operations for enterprise funds.”
The city recently refinanced more than $6 million of utility bonds, saving more than $1 million and lowering the interest rate to 3.75%, which Guerra said is an “incredible rate for our triple-B rating with no insurance.”
The city has about $19.7 million of general obligation debt outstanding, $12.9 million of outstanding debt for the Pharr-Reynosa International Bridge, and $41.1 million of utility bonds outstanding.
Guerra said there are no plans for additional GO bond issuance because “as of this moment, there is no revenue source to fund them.”
In February, Standard & Poor’s lowered its underlying rating on the city’s credit three notches to BBB from A due to a “significantly weakened financial position,” specifically the negative unreserved general fund balance at the end of fiscal 2007, “combined with a very low cash position.”
Analysts also said the outlook is negative because of uncertainty over the direction of the general fund balance.
A limited-tax pledge secures most the city’s GO debt, while an ad valorem property-tax pledge and net surplus revenue from the bridge secure Series 2005A bonds.
Standard & Poor’s said that debt and $7.1 million of unrated tax notes issued in 2006 that are secured solely by bridge revenue, are self-supporting because of the bridge’s demonstrated ability to generate appropriate financial margins.
Other factors for the downgrade include the city’s low wealth and income levels, high unemployment, and high overlapping debt, according to analysts. Pharr’s inclusion within the growing economy of the Rio Grande Valley is a credit strength, analysts said.
The Pharr-Reynosa International Bridge is becoming one of the most heavily used spans across the Rio Grande, especially for commercial vehicles carrying goods from the burgeoning industrial area of Tamaulipas, Mexico.
“Should Pharr officials begin to rebuild general fund liquidity, or adopt a plan for doing so, we could revise the outlook to stable,” Standard & Poor’s credit analyst Hilary Sutton said earlier this year. “If they continue their deficit spending ways and fail to restore the unreserved general fund balance to a level commensurate with the BBB rating, however, we could lower the rating.”
The city carries underlying GO ratings of Baa2 from Moody’s Investors Service, and A from Fitch Ratings.
At more than 65,000, the current population of Pharr is nearly 40% higher than the 2000 Census tally of 46,660.