LOS ANGELES — Standard & Poor's has joined two other rating agencies in downgrading North Las Vegas' limited-tax general obligation debt to junk.
S&P lowered the city's LTGO bond rating to BB-minus from BBB-plus citing a pending lawsuit from employee unions asking that it pay back the money not paid to city employees during the state of emergency. The outlook is negative.
The city has been battling fiscal challenges for several years. Talk of the state taking over the city of 222,000 began in 2011 after record home foreclosures helped to reverse the fortunes of the once bustling city. Under Nevada law, municipalities can't declare bankruptcy.
S&P's March 6 downgrade comes just over a month after Fitch Ratings and Moody's Investors Service lowered the city's ratings further into junk territory after a judge ruled the city illegally used a state of emergency declaration in 2012 and 2013 to avoid honoring union contracts.
Fitch and Moody's lowered ratings on the LTGO bond ratings to B from BB-plus and to Ba3 from Ba1 in late January, affecting $427.9 million in debt.
"The city's current $17.8 million budget gap in fiscal 2015 coupled with the lack of expenditure-reducing flexibility constrains the ratings," S&P analysts said of the reasoning behind the negative outlook.
Fitch and Moody's both downgraded North Las Vegas' ratings below investment grade after the city declared its second state of emergency in July 2013. S&P reduced the city's bond rating to BBB-plus from A in August 2013.
All three rating agencies assign negative outlooks.
S&P said it could lower the rating further still depending on the outcome of union negotiations on back pay and analysts don't anticipate raising the rating during the next year.
The adverse ruling from Nevada District Court Judge Susan Johnson, handed down Jan. 21, could make the city responsible for between $25 million and $40 million in retroactive pay for raises that officials agreed to before the recession struck.
"The city's liquidity is very weak, in our view, due to a contingent liability that could be greater than 25% of general fund revenue due to the pending lawsuit," S&P analysts said in the report.
In her ruling, Johnson said the city could conceivably suspend collective bargaining agreements under a state of emergency, but questioned the city's use of budgetary challenges to declare a state of emergency.
In the absence, of a physical emergency, "such as riot, military action, natural disaster or civil disorder," the city cannot suspend its obligations under the collective bargaining agreements, Johnson wrote.
S&P analysts called the city's management weak, as the city has experienced a significant amount of turnover in senior positions over the last several years.
City manager Jeffrey Buchanan, the city's fire chief, serving in an interim role, and Darren Adair, the city's "acting" finance director, were named to their positions last year after Mayor John Lee took office on July 1, 2013.
