LOS ANGELES — Fitch Ratings warned in a report Thursday that efforts by North Las Vegas to remain solvent were eroded further by an adverse court ruling.
The Nevada Supreme Court ruled against the city in an appeal of a redevelopment case.
The city of 222,000, which has junk ratings on its bonds from all three rating agencies, has been battling fiscal challenges for several years.
The bonds are rated B, Ba3, and BB-minus by Fitch, Moody's Investor's Service and Standard & Poor's, respectively.
City financial officials are scheduled to present a budget to the city council on April 10, but Fitch analysts said in their report that "no clear plan to address the city's deficit has been identified."
Nevada local governments are required to file a tentative balanced budget with the state by April 15.
State law bars Nevada municipalities from filing for bankruptcy, which means the state could become the receiver if the city is unable to close its budget gap and successfully negotiate a settlement with its employee unions for back pay, according to Fitch analysts. The Nevada Tax Commission could also eventually ask voters to approve disincorporation, Fitch analysts said.
Fitch analysts said they "believe bondholder repayment could be at risk in either situation."
The state's Supreme Court on March 21 rejected the city's appeal of a $4 million judgment related to land the city had planned to condemn and redevelop. That ruling comes on top of another adverse ruling on Jan. 21 from Nevada District Court Judge Susan Johnson, who ruled in favor of labor unions in a $25 million lawsuit.
The city had frozen city workers' wages for two years through a declaration of emergency. The labor unions sued seeking retroactive pay for raises that officials had agreed to before the recession struck.
The city has been negotiating with unions to try to negotiate the settlement down from $25 million while dealing with an estimated $18 million general fund budget gap for fiscal 2015.
The state has provided some oversight through its Committee on Local Government Finance, but Fitch analysts said the state has not indicated any interest in state receivership.
Current statute requires that taxes for bond repayment continue to be levied under disincorporation. Under state receivership, however, analysts said the statute directs the state to formulate a debt liquidation program.
North Las Vegas has about $436 million in limited tax general obligation bonds outstanding, according to Fitch. That figure includes $292 million secured by water and wastewater revenues with about $8 million in fiscal 2015 debt service costs paid from the general fund. The utilities pay about $23 million in annual debt service.
The city's fiscal challenges stem from steep declines in revenues due to the severity of the recession coupled with multi-year contracted pay raises.
"North Las Vegas has seen little benefit from the economic recovery that is boosting revenues elsewhere and has virtually no additional expenditure flexibility," according to Fitch analysts.
In fiscal 2008, the city had $45 million in general fund reserves, but that has been whittled down to $9 million, according to Fitch. The city has used its wastewater fund to support the general fund drawing it down from $178 million in fiscal 2009 to $50 million in fiscal 2013.
