BRADENTON, Fla. – Shreveport, La.’s narrowing liquidity, softening revenues and elevated liabilities led Moody's Investors Service to lower the city’s general obligation bond rating to A3 from A2.
The one-notch downgrade affects $177.6 million of GOs, Moody’s said Friday. The outlook is negative.
“The downgrade to A3 reflects the city’s limited liquidity position, reliance on economically sensitive revenues which have softened, and elevated long term liabilities with growing fixed costs,” said analyst Sarah Jensen.
Jensen said the rating incorporates Shreveport’s “sizeable and stable” $13.6 billion tax base in 2016, but the city remains challenged by the softened energy sector coupled with weak income and employment trends.
Shreveport has incurred general fund deficits in fourof the past six years while operating fund performance, which includes the debt service fund, has yielded mixed results.
Overall reserve levels have deteriorated with the available general fund balance falling to 5.4% of revenues in fiscal 2016 from 7.8% of revenues in fiscal 2011, and the available operating fund balance falling to 25.8% from 31.6% over the same period, Jensen said.
For fiscal 2017, which started Jan. 1, the city reduced its sales tax budget by 2.1% and kept expenditures effectively flat, while requiring that departments increase pension and health care contributions, according to Moody’s.
Through July, sales taxes are up 0.4% over the prior year and total general fund revenues are up 6% year-over-year, while expenditures are 6% below for the same period last year.
“Liquidity is a particular challenge for the credit and a key driver of the downgrade,” Jensen said. “The general fund has historically maintained narrow liquidity attributed to the timing of receivables, particularly property taxes, relative to the fiscal year-end in December.”
The narrow liquidity position previously was offset by stronger liquidity in the debt service fund. In fiscal 2016, the operating fund cash and investments fell to $5.4 million or 2.2% of operating fund revenues from $17.7 million in the prior year.
“At the same time, amounts due to the debt service fund from the general fund, internal services fund, and pension fund increased, which officials largely attribute to timing issues,” Jensen said. “Officials report the amounts have since been collected and repaid to the debt service fund.”
The total reported net pension liability across the five pension plans the city participates in was $351 million as of fiscal 2016. Moody’s said the city has historically contributed less than the actuarially determined contributions, and its $25.5 million contribution in 2016 fell short of its calculated “tread water” amount of $30.2 million.
Shreveport does not have any future GO debt issuance plans, though the city may borrow funds for a new arena backed with a lawfully available funds pledge, Moody’s said.
The city is bidding to build a $100 million mixed-use development anchored by a 3,200-seat arena for a minor-league basketball affiliate of the NBA's New Orleans Pelicans. The city recently unveiled a plan that would require the issuance of nearly $30 million of bonds.
Shreveport’s general obligation bonds are rated A-plus by S&P Global Ratings.
Located in northwest Louisiana, the city is the state’s third-most populous with 200,000 residents. It also has $539.8 million of outstanding revenue bonds.