LOS ANGELES -- Fitch Ratings downgraded troubled North Las Vegas, Nev.’s $436 million of limited-tax general obligation bonds to BB-plus from BBB and assigned a negative outlook, citing the city’s ongoing financial problems.
The Monday afternoon downgrade to speculative grade reflects the city’s fiscal distress, which is evidenced by the second consecutive year with a resolution declaring a state of emergency, Fitch analysts wrote in a report.
The city adopted the resolution on June 19. It was facing an $18.8 million total deficit and had been unable to come to an agreement with its four unions on concessions, which totaled $11.7 million for fiscal 2014.
“The city’s fiscal distress is driven by a steep drop in general fund revenues coupled with costly long-term labor contracts,” the report said. “Reserve levels previously viewed as a cushion against revenue fluctuations have been used to balance the budget and are narrow and illiquid.”
General fund revenues have declined to an estimated $87.6 million for fiscal 2012, a drop of 46.7% since peaking in fiscal 2008. Property taxes have continued declining and now make up only 9.7% of revenues compared to 18% in fiscal 2010.
The North Las Vegas economy was among the hardest hit by the collapse of the housing market, resulting in a combined tax assessed value decline of 52% over the last four years. The region’s tourism and gambling industries have experienced significant revenue and employment declines, but appear to be stabilizing, analysts said.
The city, with a population of 228,000, has closed several years of budget gaps by eliminating about 1,000 positions through attrition and layoffs.
The state statute permitting the declaration of emergency does not include a fiscal emergency, but the city justified its state of emergency by saying that mass layoffs of public safety personnel could result in a public safety emergency. The declaration permits a one-year suspension of labor contracts.
Nevada state law does not allow a municipality to file for Chapter 9 bankruptcy.
State law, according to Fitch, authorizes the Department of Taxation to take over the management of a local government if the entity is not able to successfully deal with budget shortfalls. City management told Fitch that the department has requested monthly updates on financial status and has not indicated any intention of significant additional steps, including taking control of the city’s financial management.
North Las Vegas is also facing lawsuits related to the fiscal 2013 state of emergency resolution and one of the city’s four unions declared its intent to file another lawsuit in response to the fiscal 2014 resolution. Fitch said the city is in settlement negotiations with three of the four unions.
If these issues are not resolved in North Las Vegas’ favor, analysts said the city will face significant financial risks.
The affected debt includes $298.6 million LTGO water and wastewater improvement bonds, $136.6 million LTGO bonds, secured by tax pledged revenues, and $1.5 million of LTGO bonds, series 2002B.