Jacksonville leaders may protest. But the move is non-negotiable.
On Thursday, Moody’s downgraded $2.1 billion of Jacksonville debt, pinning a negative outlook on issues resulting from the city’s misadventures with utility JEA.
At the root of it all: the still-under-construction Plant Vogtle nuclear plant in Georgia, which the city committed to buy power from in 2008 and has wanted out of late as conditions ranging from flat revenue streams and escalating costs to cheaper power elsewhere have become more pressing concerns.
JEA had agreed to bankroll 41 percent of MEAG’s share for 20 years. However, the utility and the city have groused of late.
And now the credit rating agencies are taking notice.
“The downgrade of the city’s debt reflects our concurrent downgrade of JEA’s electric, water and sewer and District Energy System utility debt ratings,” Moody’s contends.
Affected were a series of bonds, spanning a spectrum of city expenditures.
Jacksonville’s issuer rating dropped to A2 from Aa2, Special Revenue Non Ad Valorem Covenant bonds to A3 from Aa3, Better Jacksonville Sales Tax Revenue bonds to A2 from A1, Capital Projects bonds to A2 from Aa3, Excise Taxes Revenue bonds to A2 from Aa2, Capital Improvement bonds to A2 from Aa3 and Transportation bonds to A2 from A1.
The issue: “the city’s participation as a plaintiff in litigation with JEA, a component unit of the city, against Municipal Energy Authority of Georgia (MEAG), in which JEA and the city are seeking to have a Florida state court invalidate a ‘take-or-pay’ power contract between JEA and MEAG.”
This is a problem for Moody’s, raising questions about the city’s “willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s creditworthiness on all of its debt and is not consistent with the prior Aa rating category.”
“The negative outlook reflects the uncertainty surrounding the disposition of the city’s litigation during the outlook period,” Moody’s adds.
If the city drops the lawsuit, Moody’s said that might help.
In a rare public quote, Chief Administrative Officer Sam Mousa blasted Moody’s decision.
“The City of Jacksonville strongly rejects Moody’s downgrade of the City for its participation in an effort to protect the ratepayers and taxpayers of Jacksonville from a constitutionally unsound agreement previously entered into by JEA concerning the construction of Nuclear Power Plant Vogtle,” Mousa said.
?JEA customers are currently paying for this skyrocketing, out-of-control nuclear power plant project with no certainty in cost or completion timeline. This downgrade action is based upon wild speculation, completely without rationale or merit, and not at all indicative of the City’s commitment to pay its debt (both past and present), or of its financial strength and integrity,” Mousa added.
“Moody’s refused to acknowledge the City’s clearly stated (and historically demonstrated) commitment to make debt payments. The City cannot sit idly by while others make decisions that have significant consequences for our citizens without exploring all of our options,” Mousa contended.
Ironically, just months ago the city got from Standard and Poor’s its first AAA rating, even as JEA credit was already trending south, in light of the Plant Vogtle deal.
The AAA for excise tax revenue bonds led CFO Mike Weinstein (who has since retired from City Hall) to laud the “confirmation that the strong fiscal management you established is being recognized by the financial community at large … proof that the Jacksonville economy is vibrant and growing.”
Plant Vogtle, however, is a big deal for the city.
Jacksonville’s public utility JEA and Georgia’s Municipal Electric Authority are at loggerheads over the future of the $27 billion Plant Vogtle, with lawsuits filed by each side.
JEA wants out of the deal, and went so far as to negotiate better terms for MEAG with an alternative power vendor while also agreeing to pay “sunk costs” on the agreement.
However, the four Georgia utility companies involved in construction of the nuclear facility had budgeted for cost overruns, and have decided to move forward with the project.
The utility is on a negative credit watch from Standard & Poor’s.
“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, according to the Florida 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.”
Estimated completion dates of the new nuclear units remain Nov. 2021 for Unit 3, and Nov. 2022 for Unit 4.