Office of the Mayor
Kent mayor responds to Moody's downgrade
KENT, Wash. – February 7, 2012 – The decision by Moody's Investors Service to lower the rating on Kent’s Limited Tax General Obligation (LTGO) bonds will have no immediate impact on the city’s finances, Mayor Suzette Cooke reported at the City Council’s Operations Committee meeting Tuesday.
On February 6, Moody's lowered the city’s bond rating one point from Aa3 to A1. In Moody's terms, an Aa3 rating means that an obligor has a very strong ability to meet its financial commitments while a rating of A1 represents that an obligor has a strong capacity to meet its financial obligations, but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
Cooke said city government has been in persistent contraction for the last four years. “Rising costs and deteriorating revenues have forced reductions in every area of our budget. We have significantly cut internal supports - like training and supplies, reduced staff, cut programs, and delayed projects until economic conditions stabilize. We’ve been trying to maintain a level of service that least damages our residents and job base,” said Cooke. As Moody’s notes, ‘there is uncertainty with regard to the city’s ability to implement additional expenditure cuts as it has already enacted significant cuts over the last three fiscal years.’
“Uncertainty created by the economic recession has placed a financial burden on all levels of government,” said Cooke. “Locally we know South King County sales tax revenue is down 32 percent, the sluggish construction industry has gutted our development fees income, and the dearth of property sales has reduced Real Estate Excise Tax revenue by 75 percent. As the state and King County re-align their budgets, they have either reduced committed revenues to us (such as Streamlined Sales Tax mitigation) or transferred the responsibility of providing services down to us with no attached revenue (such as animal control). The trickle-down effect has left Kent financially vulnerable to acts and decisions outside our control.” Moody’s report states, ‘There is also uncertainty with regard to the city’s ability to preserve current levels of state shared revenues….’
Cooke said the downgrade does not affect current indebtedness or bond payments, nor would it affect voter-approved or revenue bonds; the city has no plans to issue LTGO bonds in the near term.
Moody’s report lists Kent’s strengths as having a large, relatively resilient property tax base; a stable local economy; and a “still manageable debt burden” with regards to the Public Facilities District that supports ShoWare Center. The report also notes the city appears to be in the early stages of a turnaround, committed to rebuilding negative fund balances, paying down interfund debts and stabilizing recurring fund operations. Cooke said the city is already working to improve its finances.
Michelle Wilmot, Community & Public Affairs