DALLAS - With $21 million of bond issues planned over the next two years, Artesia, N.M., is considering its options for taking that debt to market after Standard & Poor’s withdrew its ratings following a failed audit.
The Accounting and Consulting Group LLP of Albuquerque, N.M., said it could offer no opinion on the city’s finances after reviewing Artesia’s fiscal year 2011 documents.
In response to that “no opinion” ruling, Standard & Poor’s withdrew its A-plus rating on Artesia’s gross receipts tax revenue bonds and its water and wastewater system revenue bonds.
“In the fiscal 2011 audit, the independent auditors cited that they were unable to substantiate the account balances for revenues, expenditures, capital assets, related depreciation expense, accumulated depreciation, long-term debt, and related debt activities in addition to design deficiencies in accounting and financial practices that call into question the account balances of the city’s major and non-major governmental and propriety funds,” said Standard & Poor's credit analyst Jaime Trejo.
S&P noted that the ratings could be reinstated when the financial picture is clarified.
Aubrey Hobson, city clerk and treasurer for Artesia, said the problem stems from accounting procedures that have occurred over the past decade and the need for new software.
“We have to do everything by hand at the end of the year and list what is CIP (capital improvement program) and what is not,” Hobson said. “If you really look at our financials, we’re probably stronger than any other New Mexico town.”
Artesia issued $20 million of gross receipts tax revenue bonds in 2009 and $12.89 million of water and wastewater system revenue bonds in 2010. S&P rated those bonds A-plus at the time.
The city wants to issue the first $7 million installment of a $21 million bond program in the next three months but now must devise a strategy for reaching the market. The audit will not be rectified until the next audit period, Hobson said.
One option is to issue through the New Mexico Finance Authority, but that state agency is in the midst of its own turmoil over an audit that was falsified. The phony audit led to the indictment of the NMFA’s controller and the resignation of its top executive.
Hobson said NMFA may still have some capacity for small issues, even though it is unable to issue large deals without a legitimate audit.
“I just found out about this,” Hobson said. “I’m working with our financial advisor RBC Capital to see what our options are.”
Located in southeastern New Mexico between Roswell and Carlsbad, N.M., 100 miles west of the Texas border, Artesia’s economy is anchored by energy and agriculture. With a population of more than 10,000, the Eddy County town has boomed recently due to the influx of energy production companies and suppliers.