LOS ANGELES — Mason County, Wash. took a rating hit ahead of a $6.3 million bond deal.
S&P Global Ratings agency lowered the long-term rating on the county of 63,190 by one notch to A-plus from AA-minus Monday.
S&P also assigned the county a negative outlook saying there is a one-in-three chance it could lower the rating further — potentially by multiple notches — within its two-year outlook horizon if the county finishes fiscal 2017 with another deficit, and the rating agency determines county finances are structurally imbalanced.
"The lowered rating reflects our view of the deterioration in the county's budgetary performance, leading to a significant reduction in budgetary flexibility," said S&P Global Ratings credit analyst Benjamin Geare.
S&P also assigned its A-plus rating with a negative outlook to the county’s plans to issue $6.3 million in limited tax general obligation Series 2017 refunding bonds. The proceeds will be used to refund the county’s outstanding series 2002 LTGO bonds, payable from sewer revenues, and to advance refund the county’s outstanding series 2008 LTGO bonds.
The county has been wrestling with budget problems resulting in deficits since 2015. Its seat in Shelton is about 20 miles northwest of the state capital, Olympia.
It had $35.7 million in long-term debt including governmental loans as of year-end 2016, according to financial statements posted to the Municipal Securities Rulemaking Board’s EMMA website on Sept. 25.
County administrators cut $2 million mid-year from the $36.3 million fiscal year 2017 budget and then asked department heads in September to make deeper cuts in their 2018 budgets after preliminary 2018 budgets came in.
The county’s financial position continues to decline and uncertainty exists about the county’s ability to maintain services at the present level, Washington State Auditor Pat McCarthy wrote in the county’s 2016 financial statements released in September.
The county had to make mid-year budget cuts and is using real estate excise taxes and sales tax revenues from other governmental funds to make capital improvements and debt payments for the Belair Sewer and Rustlewood Water and Sewer projects, McCarthy wrote. The money isn’t coming from the general fund; and the county hopes to expand the system in hopes of stabilizing the fund. The county also hopes to resolve the auditor’s concern about the two systems “by adopting an update rate structure that will keep pace with cost increases,” S&P analysts wrote.
The Belfair Wastewater system, which recently issued revenue debt to expand the system, did not receive sufficient additional users and is not generating enough revenue to pay the system’s debt service.
Despite the concerns, S&P wrote that the county’s budgetary flexibility is strong with an available fund balance in fiscal 2016 of 10.8% of operating expenditures, or $3.6 million; and it does have the flexibility to raise property taxes.
S&P analysts said they could “revise the outlook to stable if the county ends 2017 and 2018 with at least balanced results” and adopts a plan for its Belair Water System.