Marc Joffe, a principal at Public Sector Credit Solutions

BRADENTON, Fla. - A myriad of fiscal problems, unfunded pension obligations, and bond covenant violations plague the small city of Bogalusa, La., according to a 2012 audit review and October site visit by state auditors.

A municipal market consultant said the city's financial distress extends back at least five years. Over that time there were ongoing deficit fund balances and underfunded pensions.

The most recent state auditor's review, based on the city's 2012 audit, found a $1.1 million general fund deficit at the close of the fiscal year Dec. 31, 2012 that could not be updated because Bogalusa's accounting system crashed in May 2012, auditors said in an April 16 advisory letter to Mayor Charles Mizell.

The system was fixed earlier this year, and the city reported an additional $600,000 deficit, according to the Daily News in Bogalusa.

A city official did not respond to a request for comment from The Bond Buyer by press time.

The general fund has not repaid $610,000 that it "improperly" borrowed in 2006 and 2007 from the debt service and street overlay funds, state auditors said. The city's 2012 audit also revealed covenant violations and the city later discovered a cash funding shortage in reserve accounts for 2009 and 2012 bonds totaling $465,927.

None of those events were disclosed on the Municipal Securities Rulemaking Board's EMMA filing system. Only the 2012 audit was posted, according to a review by The Bond Buyer.

Bogalusa had $6.4 million of outstanding bonds and $2.5 million in current pension liabilities at the end of 2012. Most of the bonds appear to be unrated, except for $1.75 million of general obligation bonds issued in 2007 that were rated BBB-minus by Standard & Poor's at the time.

The rating was affirmed Sept. 28, 2012, but was withdrawn Dec. 20, 2013 due to a lack of information, an agency spokesman said. The bonds are now unrated.

As of June 30, 2012, the city's pension plans had more than $12.7 million in long-term unfunded liabilities. The city failed to pay the full annual required contribution, and funding levels have fallen under 36% in 2012 from 57.73% in 2003, state auditors said.

They also noted that employee salaries and fringe benefits are the city's biggest operating expense at 75%. The city pays 100% of health plan premiums for all full-time employees, which cost $1.2 million last year, the said. Auditors suggested the city review plans and staffing levels, and other cost-saving measures.

State auditor Daryl Purpera asked the city to submit a detailed action plan to resolve the issues by May 16. He told The Bond Buyer in an email that the Bogalusa review came about through ongoing fiscal monitoring by the legislative auditor's office and the Louisiana Fiscal Review Committee.

Mizell has told local media that a formal plan is nearly complete.

Bogalusa's financial problems became widely known because of a recent state review, but the city's problems are not recent, according to Marc Joffe, a consultant at muni finance data collection firm Bitvore Corp., and a principal at Public Sector Credit Solutions.

Joffe said he reviewed as many as five years of city audits, and found negative general fund balances.

"This implies to me that this credit could continue to underperform," he said. "On the other hand, if the accounting system went down and the city had no control over revenues and expenses, I think that would be a signal for heightened concern."

In a Bitvore column, Joffe said Bogalusa is an example of how difficult it is to monitor the financial conditions of thousands of small cities in real time. He also noted that Louisiana allows municipalities to file for Chapter 9 bankruptcy.

"We … wonder whether this could be the first such filing in 2014," he wrote.

The city, on Louisiana's southeast border with Mississippi, has a population of about 12,000, a decline since 1960 when residency peaked at 21,000. The city was also battered by Hurricane Katrina in 2005.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.