Standard & Poor's Friday lowered its underlying rating on Woodstock, Ga.'s general obligation bonds three notches to A-minus from AA-minus.
"The downgrade is based on the city's overspending its available reserves in 2010 and 2011, resulting in negative general fund reserves, which could leave it vulnerable to future shocks," said Standard & Poor's analyst Lindsay Wilhelm.
Additional credit factors include evidence of fund balance stabilization in fiscal 2012, maintenance of sufficient pooled cash to fund operations despite negative reserves, voter approval of a special-purpose local-option sales tax to fund future capital expenditures and offset debt service, strong wealth and income indicators with new economic developments expected, and a moderate debt burden.
"We understand that the city's negative reserve position is attributable, in large part, to a record-keeping error that overstated unaudited general fund reserves in fiscal 2010," Wilhelm said. "As a result of the error, the city significantly drew down general fund reserves in both fiscal years, resulting in a negative unassigned fund balance of $1.2 million in fiscal 2011, or negative 8.5% of general fund expenditures."
Total general fund reserves were $828,000 or negative 5.8% of expenditures compared with an unreserved fund balance of $3.7 million or 17% of expenditures.
The stable outlook on the city's credit reflects Standard & Poor's view of Woodstock's stabilizing financial position, coupled with plans to begin rebuilding reserves over the next several years through structurally sound operations, according to Wilhelm.