DALLAS – The fertilizer plant explosion that leveled a portion of West, Texas, April 17 could result in a downgrade of the town’s credit, Moody’s Investors Service said Friday.
The city north of Waco was put under review for possible downgrade due to the destruction of city infrastructure, including utility lines, in the vicinity of an explosion that killed 15, destroyed or damaged 350 homes, and damaged some schools of the West Independent School District.
West has $385,000 of general obligation debt rated Baa1 by Moody’s and $2.5 million of unrated outstanding GO debt.
“The action also reflects potential sizeable losses in property taxes and sales taxes, which provide over 70% of operating revenue and which could significantly strain financial operations,” said Adebola Kushimo, an analyst in Moody’s public finance office at Dallas.
More than a third of the city’s budget comes from sales tax revenues that are expected to decline over the near term, Kushimo said. Property damages could result in a lower property tax base as well.
Property damages are estimated at $100 million.
Since the fertilizer plant explosion, the state of Texas, the Federal Emergency Management Agency and the Small Business Administration have approved more than $6.5 million in federal disaster assistance grants and low-interest disaster loans for eligible individuals and families in McLennan County.
A federal disaster declaration would make the city government eligible for 75% reimbursement from FEMA, Kushimo said.
“In the coming weeks, we expect to obtain a better understanding regarding fiscal 2013 financial performance, state and federal assistance for damages, and the 2014 budget including funding sources as well as any possible tax rate adjustments,” Kushimo said.
West has historically maintained healthy liquidity ratios in its general fund and water and sewer fund, the Moody’s report said, but the destruction from the April 17 blast was severe.