This week, Jacksonville celebrated a milestone in its history of bond ratings: its first standalone AAA rating. Meanwhile, its local utility suffered a setback.
On Monday, CFO Mike Weinstein emailed that the city “received notification that Fitch Ratings has upgraded to ‘AAA’ from ‘AA’ the City’s excise tax revenue bonds.”
“Our records show this is the first time in City of Jacksonville history that the City, or any of its revenue pledges, has received an ‘AAA’ rating from a major rating agency on a standalone basis,” Weinstein observed.
“This is exciting news for our City! Not only is it confirmation that the strong fiscal management you established is being recognized by the financial community at large, but it is also proof that the Jacksonville economy is vibrant and growing,” Weinstein added.
“This is a tremendous win for the City of Jacksonville,” said Mayor Lenny Curry. “I’m proud of the history we are making by bringing strong fiscal management to our city. My administration will remain consistent in our commitment to respect the hard-work of taxpayers.”
In less “tremendous” news that was not trumpeted with a press release, Friday also brought word that Standard and Poor’s put local utility JEA on a “negative credit watch,” as Florida Times-Union reporter Nate Monroe noted.
“In our view, JEA’s assertions that its board acted beyond the scope of its authority raises questions about the quality of the utility’s internal controls,” S&P analyst David Bodek said, per the Times-Union
“In our opinion, the utility’s legal claims seeking to repudiate the board’s actions after a decade call into question the utility’s willingness to meet its contractual financial obligations.”
The JEA Board agreed to purchase power from the under construction Plant Vogtle in Georgia in 2008. The plant has had delays and increased costs in construction, and the current leadership of the utility filed suit to get out of the deal — which did not play well with S&P.
Notably, the city’s press release hyping the credit upgrade dropped at the same time reports of the S&P hit on JEA dropped.
Since Lenny Curry took over as mayor in July 2015, the city has strengthened its financial standing.
In 2015, Curry noted that if the city didn’t address its unfunded pension liability, the city could be like Detroit by 2020.
The first Curry capital improvement plan was lean, a measure of money encumbered by the city’s spiraling pension liability.
While the pension liability is still spiraling (north of $3.2 billion now), relief occurred when the city ratified a pension reform plan that moved people hired after October 2017 to defined contribution plans — rather than the defined benefit iterations that caused the city such fiscal strain.
That ratified reform lowered the city’s contribution from an expected $360 million in FY 17-18 to $221 million, reamortizing the debt and structuring paydown to start in 2030, when the Better Jacksonville Plan would be paid off; the ½ cent sales surtax currently dedicated to that capital improvement plan of the turn of the century will instead be moved to old pension debts.
The near-term salutary effects of the restructuring can be seen in the latest proposed budget, slated to be ratified later this month. Ratings agencies like the fact that the city “stopped the bleeding,” instituted a defined contribution plan, and identified a revenue source.
As compared to the $1.19 billion general fund budget in FY 16-17, and the $1.27 billion budget last year, the general fund budget is up this year to $1.31 billion.
That’s thanks to pension reform, which the Mayor’s Office says contributes to $331 million of savings over two years.
“Without pension reform,” Curry said, “millions and millions of dollars would be diverted away from making our city better.”
A big part of the spend: capital improvements. FY 18-19 will see $161.4 million allocated to improvements, with big spends on Hart Bridge offramp removal ($12.5 million from the city matching the same sum from the state), a new fire station ($5 million), road resurfacing ($12 million), money for infrastructure at U.F. Health ($15 million, part of a $120 million commitment) and sidewalk projects (many of them delayed for years).
The CIP, at $161.4 million, doubles Curry’s first CIP of $72 million, and comes at a time where the city is investing heavily in police, fire, and children’s services via the “Kids Hope Alliance” — a Curry-devised umbrella organization that oversees spending on children from economically-disadvantaged backgrounds.
There have been worries about the city’s financial position in the past: a bill introduced in Council last year would have set aside year-over-year portions of increases in general fund revenue and apply them to the unfunded liability, with that portion eventually capping out at 15 percent of yearly revenue hikes.
That bill was floated because there were worries that the city could face a $10 billion unfunded liability by the time the ½ cent Better Jacksonville Plan sale tax was repurposed to tackling that deferred bill.
The Curry administration was adamantly opposed.
“We’re done with pension reform,” said more than one official.
And as far as the ratings agencies are concerned, the city’s approach is vindicated in one sense.
The question that many will be watching, both for the 2019 elections and beyond: how does the city’s financial position translate into dealing with historic inequities, with many older neighborhoods on the Northside, Westside, Arlington, and the Southside dealing with issues ranging from poverty and poor education to subpar infrastructure.
And a corollary question, especially in light of the JEA gambit: will the mayor’s office be seen as liable for the issues at the local utility, which is now run by a Curry ally, and which has a board stocked with Curry picks?
Certainly, potential opponents for Curry — such as Councilors Garrett Dennis and Anna Brosche — will frame it as such.