Moody’s Investors Service on Monday downgraded the DuPage Water Commission’s debt by three notches and left a negative outlook because the utility has depleted its reserves and borrowed to cover operations.
Moody’s also chastised the commission for weak management that was not in line with the previous higher ratings as well as its failure keep rates at a level to support expenditures.
The current ratings reflect the water system’s broad, diverse, and affluent tax base and a manageable debt profile.
Moody’s downgraded $12 million of general obligation bonds to A1 from Aa1 and $71.9 million of water revenue bonds to A2 from Aa2. The Water Commission serves the far west suburbs of Chicago.
The district has abated property taxes levied to support its GOs since 1986, instead tapping its sales tax to cover debt service.
It also has relied on sales taxes to pay off a portion of its water revenue bonds in order to keep rates down.
As the commission enjoyed strong balances in the last decade, DuPage County and local municipal utilities pressured it to redistribute more than $115 million. The agency was further hurt by a sharp dip of sales tax collections in 2009 and rate hikes charged by Chicago for treated Lake Michigan water.
With current leaders blaming lax governance by the district’s former financial administrator, the commission depleted its reserves and was forced to borrow $70 million through medium-term notes from local banks.
Debt-service coverage fell to below one times in 2009. Projected coverage for fiscal 2010 is expected to show some improvement and officials are projecting a $900,000 operating surplus.
The reserve depletion prompted then-Sen. Dan Cronin to sponsor legislation reconstituting the board. Cronin is now DuPage County Board chairman.
Six commissioners and the chairman are appointed by Cronin and six are appointed by local mayors. The new board is expected to be in place this month.