DALLAS — Falling reserve levels and delays in financial reporting prompted Standard & Poor’s to lower the ratings of Fort Worth’s general obligation debt and lease revenue bonds by two notches. Now all three major ratings agencies have downgraded the city’s debt due to the lack of timely disclosure.
The filing delays started about four years ago when a new auditor ran into difficulty reconciling bank statements to the general ledger for fiscal 2007. The auditor noted “material weakness” in the reconciliation method, tracking of assets, and internal controls, according to Fitch Ratings.
Delays in filing the fiscal 2004 reports have led to delays in completing the statements for the following years, as well. “This snowball effect will likely continue through fiscal 2009,” Standard & Poor's said.
Officials expect to have monthly reports ready next month, although the latest available report is from April, according to analysts.
Standard & Poor’s downgraded the GO rating to AA-minus from AA-plus and the lease revenue bonds to A-plus from AA.
In August 2007, Fitch downgraded both the GOs and the city’s water and sewer system debt to AA from AA-plus, citing the delays in filing comprehensive annual reports. Analysts also lowered the rating on the city’s lease revenue bonds at that time to AA-minus from AA.
Earlier this year, Moody’s Investors Service downgraded its rating on the city’s GOs to Aa2 from Aa1, citing the “continuing challenges related to the city’s financial reporting infrastructure.”
Ths week, Standard & Poor’s analysts said ongoing delays in monthly financial reporting have made the reports “more critical.”
“The prolonged delay in accurate periodic reports could hamstring management’s decision-making ability,” analysts said. “This, coupled with a reduced cash reserve level, serves as limitations on the credit rating.”
Fort Worth is in the midst of a six-year, $224 million capital improvement plan it began in 2004. The disclosure hiccups precluded access to the market in 2006, but officials managed to sell about $211.2 million of general purpose bonds and certificates of obligation this year through private placements, according to analysts.
About $123.5 million of the 2004 authorization remains and officials anticipate issuing all the debt by 2010.
Fort Worth plans to privately place another $32.8 million of combination tax and parking complex revenue certificates of obligation soon. Following that sale, the city will have about $565.5 million of outstanding GOs.
Voters approved another $150 million bond package in May for much-needed street and roadway improvements to keep pace with rapid population growth and development.
Fort Worth has added more than 153,500 new residents since the 2000 Census and now is home to about 688,200 people.
The City Council has taken steps to defer some non-essential services and transfer revenue from other accounts to try and bring the reserve fund back to the mandated 10% of the annual operating budget, which is equal to about $51 million.
Standard & Poor’s said the city ended fiscal 2006 with an unreserved general fund balance of $74 million, but preliminary data has the figure declining to $45.1 million for last year and further to $31.7 million for fiscal 2008.
City officials also have expressed concern over troubles attracting qualified people to fill open posts in the Finance Department. The city currently lists openings for assistant finance director and budget director, as well as for a director of transportation.