New Orleans is taking steps to merge its largely independent water and sewer board in a step that may be aimed at improving the board's financial position.
The board of directors of the Sewerage and Water Board of New Orleans voted unanimously Wednesday to integrate the board into the city's government and to attempt to complete the integration by 2028.
The board reported $885.4 million of long-term debt obligations as of Dec. 31, according to its most recent
"The people of New Orleans deserve better results from the Sewerage and Water Board, but for too long complex governance and operational challenges have stood in the way," said Mayor Helena Moreno. "Today, we are marking another step forward in finally and permanently solving these complexities with solutions long sought by good government and citizen groups."
Moreno said the merger would increase water and sewer efficiency and effectiveness.
The Nola.com web site said the merger is aimed at improving the board's borrowing capacity.
The board's bonds are rated BBB-plus by S&P Global Ratings and Fitch Ratings. S&P
The city's issuer default rating is Baa2 from Moody's Ratings, BBB-plus from S&P and A-minus from Fitch. Moody's and S&P's ratings have negative outlooks and Fitch has a rating watch negative.
At the start of August Louisiana Act 938 went to effect, expanding New Orleans city council's oversight of the board. Since the late 19th century, the board has formally been a state entity with some city influence. Rate adjustments have had to be approved by the board, which had included the mayor and two members of the city's Board of Liquidation, the city council and the Board of Liquidation, which oversees the city's general obligation bonds.
With the new law the city has complete control over water and sewer board membership and lengths of service and will control its operating budget. The mayor has opted to take the additional step of merging the board in the city's government, with the goal of completing the process within two years.
S&P said in early August that while it didn't view Act 938 "as having any immediate credit impact on either [the board] or the city, we will be monitoring how, as to what extent, governance changes affect each entity's ability to improve their financial operations and execute strategic goals."
In its rating report from a year ago, Fitch said the water and sewer system's ratio of funds available for debt to net adjusted debt supported a financial profile assessment of "a." However, "the continuance of long-standing extensive capital needs, history of more volatile performance, vulnerability to outages and boil water notices and high amount of non-revenue water … suggest an overall risk profile more in line with a 'BBB-plus' rating."
S&P in March said the system had high rates of sanitary sewer overflows and ongoing capacity constraints. Service rates have been unchanged since 2020 despite rising costs and high poverty levels among customers limiting the political feasibility of raising the rates.
The area's population, employment and income growth is expected to lag that of the nation through 2029, it said. "Given scheduled debt increases, all else remaining equal, we project debt service coverage to fall to 1.4 times by fiscal 2026."
KBRA made some similar points to the other ratings agencies but said the sewer system had historically strong performance and the WIFIA loan had strong legal provisions.
