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Citing Plant Vogtle, Moody’s downgrades Jacksonville credit rating

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.

Moody’s: Florida now earns highest credit rating

Some good news for Florida’s credit ratings emerged Thursday, with upgrades across the board from Moody’s seemingly vindicating Gov. Rick Scott‘s approach to financial management.

Per a media release: Moody’s upgraded the state one notch from Aa1 to Aaa, with a stable outlook for the best rating possible, despite what is called an “aging population.”

“Florida’s general obligation debt upgrade to Aaa reflects a sustained trend of improvement in its economy and finances, low state debt and pension ratios, and reduced near-term liability risks via the state-run insurance companies. Florida’s economy is performing strongly in terms of job growth, and long-term growth prospects are favorable despite the challenges posed by an aging population base.”

Florida joins 14 other states with an Aaa rating. Scott has repeatedly asserted that under his watch, Florida shed $9 billion of debt ($5.5 billion in general debt, and $3.5 billion from the repayment of an unemployment compensation loan from 2009).

On Friday, Scott offered a lengthy statement on how his approach saved Florida’s economy.

“When I became Governor in 2011, Florida’s economy was in terrible shape. By December 2010, state debt and unemployment had skyrocketed, taxes had been needlessly hiked by more than $2 billion and frivolous spending was commonplace — all costing Florida families more than 800,000 jobs. Since day one, we’ve worked nonstop to reverse this course, and today’s rating from Moody’s demonstrates the success of Florida’s economic turnaround,” Scott asserted.

“The entire country should take note,” Scott added, citing the fulfillment of his agenda.

The Moody’s release lauds Florida’s “healthy reserves and historically strong governance practices and policies that are expected to continue,” and “consistently low debt and pension liabilities that compare well with other Aaa-rated states.”

Hurricanes have been an issue the last couple of years, but Moody’s trusts the state to deal with those impacts: “Florida’s exposure to storm-related costs and other climate risks is high, but the state’s economy and finances have proved to be highly resilient to storm events and also position it well for the challenge of adapting to longer-term climate trends.”

Florida’s pension liability of $16.5 billion is 35 percent of state revenues, which compares well to the 50-state median of 82 percent. Debt per capita is also below that median.

Also up: Florida’s Department of Management Services facilities pool revenue bonds and certificates of participation to Aa1 from Aa2; Department of Children and Families certificates of participation to Aa2 from Aa3; State Board of Education’s Lottery Revenue bonds has been upgraded to Aa3 from A1.

Could climate change presage Jacksonville credit downgrade?

Not even three months after Hurricane Irma comes an indication, via Moody’s, that a storm may be brewing in municipal credit markets.

Via Bloomberg: “If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default.”

Moody’s considers six indicators to measure exposure, like how many homes are in a flood plain — an issue for Jacksonville.

During Hurricane Matthew, Jacksonville issued mandatory evacuations in Flood Zones A, B, and C; these encompassed 450,000 people.

During Irma, Jacksonville evacuated zones A and B, which encompassed 256,000 people.

Despite those evacuation orders, life was imperiled: 350 residents had to be rescued in the hours after the storm churned out of the area. Downtown Jacksonville suffered historic flooding, as did neighborhoods on the river, such as Avondale, Riverside and San Marco.

While Moody’s has yet to actually downgrade a city for not addressing climate change, Jacksonville has physical vulnerability.

As well, the city has backed away from nationwide initiatives — such as the Rockefeller Foundation’s “100 Resilient Cities,” which offered $1 million a year to participating municipalities.

Jacksonville Mayor Lenny Curry — who created a media kerfuffle earlier this year in backing President Donald Trump‘s intention to leave the Paris Accord, an international agreement to curb emissions and other environmental impacts, is not worried about potential future credit downgrades, he told us Wednesday.

“Sea levels are rising, in Jacksonville and the state. We certainly experience catastrophic storms … and we in Jacksonville are doing everything we can to invest in proper infrastructure on the front end, and [working] to keep our people safe on the back end,” Curry said.

“Our Public Works Department has a comprehensive plan they are currently re-evaluating and have been prior to these storms. So I would say we face the reality in front of us and those rising sea levels and those storms are a reality in front of us, and we will adjust accordingly,” Curry added.

But will that convince the bond ratings agencies?

“Budgets — real budgets and real investments speak to bond rating agencies. Not a bunch of feel-good talk that a lot of elected officials like to do that result in no real investments and no real budgets,” Curry said.

“I stand by my budgets. I stand by my work with City Council. I stand by our investments in neighborhoods and infrastructure,” Curry added.

Jacksonville’s credit ratings have improved in recent years.

However, Moody’s already expressed concern about pension reform, specifically about the deferred payment model on the $3.2 billion unfunded actuarial liability from the city’s defined benefit plans.

“The Aa2 Issuer Rating reflects the city’s high fixed costs, which are elevated by weak pension funding levels. Despite a new pension reform plan, pension payments will continue to constrict the city’s financial operations. The rating also reflects the city’s rebounding, large and diverse economy, coupled with a strengthened balance sheet position, that both help buoy the rating at the current level. Moody’s will closely monitor the city’s ability to control rapidly increasing fixed costs,” the agency asserted in August.

Moody’s: Florida transportation authorities should bounce back quickly from Irma

Florida’s transportation infrastructure should be able to bounce back quickly from Hurricane Irma according to a memo put out Tuesday by financial research group Moody’s.

The credit rating group said even though many are still closed, the state’s airports, seaports and toll roads will “generally be able to sustain their long-term credit quality because of three important factors: strong liquidity, resilient revenue streams, and experience with previous storms that has improved readiness.”

Moody’s cited large cash reserves held by tolling authorities, airports and seaports in the memo, which it says will help them wade through a short-term drop in revenue over the coming weeks.

Of the 20 transportation groups to issue bonds, state toll roads will fare the best in their recovery, with Moody’s pointing to cash reserves among the five state-owned toll roads totaling 2,200 days of operating expenses.

The Miami-Dade County Expressway Authority is in even better shape, with nearly 4,000 days’ worth of cash on hand, while the Canaveral Port Authority has the lowest reserves, clocking in at still respectable 185 days.

The financial rating group also lauded Florida’s emergency management network, which it said is well positioned to help get the Sunshine State’s transportation infrastructure up and running again post haste.

Lenny Curry: Jacksonville is ‘on good financial ground right now’

Jacksonville Mayor Lenny Curry prioritized improving the city’s financial picture as a candidate in 2015, and in 2017 there was strong evidence that happened.

The city has strong bond ratings — AA- — and the market’s confidence was reflected in $388 million of offers on $145M worth of bonds this week.

Curry noted Wednesday that “demand far exceeded the offering,” showing the “strength of ratings” and “confirming what the ratings agencies” have been saying.

“We’re on good financial ground right now,” Curry said, setting up a theme of the day: a budget hearing in which the Jacksonville City Council Finance Committee mulled the city’s capital improvement budget.

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Before jumping into Jacksonville’s capital improvement budget Wednesday, the Curry administration presented a debt affordability study.

Debt levels have been coming down, and revenues have been increasing, said city treasurer Joey Greive.

The CIP includes $122M of authorized borrowing over the next five years, Greive said, recommending that debt be assumed following guidance from bond ratings agencies.

“Fiscally responsible budgets” and “strong operating performance” have helped, Greive said, allowing the city to bolster reserves.

Greive noted that the $145M bond deal brought in $388M of orders, showing “strong demand.”

“The city of Jacksonville’s still in favor in the marketplace,” Greive noted, pointing out the continued AA rating.

The city has $1.1B of outstanding general fund debt, and $1.2B in Better Jacksonville Plan debt; Greive suggested that the BJP debt may be paid off before 2030, allowing relief for the city’s pension obligation.

As well, 95 percent of the city’s debt is fixed-rate.

“We have some positives, but also some challenges the ratings agencies mentioned,” Greive said.

Councilwoman Lori Boyer described an “important story” to be told, with Jacksonville having waived criteria during the previous Mayoral administration that is now followed.

“In the last few years, we have substantially paid down debt … we have improved all of our ratios … in compliance and within the range on every ratio where we were not previously,” Boyer said, noting even this ambitious CIP is affordable.

CFO Mike Weinstein noted that much of the borrowing for the CIP could be years down the road, and the Curry administration’s first bond issue was just this week.

“We are in a very good position,” Weinstein said.

One caveat: the study doesn’t include pension debt, which concerned Councilman Danny Becton.

Also concerning Becton: Moody’s and Bloomberg comments regarding potential fixed-cost issues.

Greive dismissed the Bloomberg article, saying the “bond results speak for themselves,” though later he conceded that “fixed-costs” were an issue for future concern — a contention of the article.

Weinstein also noted the article said Jacksonville was “moving toward AA standards … moving in the right direction.”

“We’ve had three ratings done on the city since pension, and each of the ratings agencies rated us AA- and stable,” Weinstein said. “We are in good stead.”

While Jacksonville has “liability,” the city is “better positioned today because of the pension reform.”

And, said Weinstein, the ratings agencies fold pension into the mix.

Councilman Bill Gulliford wanted guidance into Jacksonville reserve levels, which Weinstein said were “adequate but could be better,” and “barely over what Moody’s looks for in AA.”

“We are definitely solid and stable,” Weinstein said, but nowhere near a AAA rating due to scanty reserves.

CAO Sam Mousa said “people were scrambling to buy” Jacksonville bonds, “a great indication of how great those bonds are.”

“The ratings agencies did well in looking at our history, stability, willingness to pay … these are good, stable bonds to invest in,” Mousa said.

“Eventually, in another year — maybe sooner, maybe later — we will come back to the Council and say ‘it’s now time to borrow additional moneys,” Mousa said.

Pension reform, Mousa added, created confidence in a robust CIP, to handle neglected “projects that had been on the books for a long time.”

Boyer also noted the city’s debt management policy, mandating level debt.

“We can’t do ‘max out the charge card,'” she said, requiring the city to maintain a “stable picture” that “continues to improve.”

Florida adds 18,100 private-sector jobs in July, ADP survey shows

Florida added 18,100 private sector jobs last month according to new employment data released by payroll company ADP.

July’s ADP Regional Employment Report showed the most of the new jobs heading to the service industry, which saw a gain of 16,500 jobs, including 2,300 new positions in the trade, transportation and utilities sector and 5,300 in the professional and business services industry.

The massive service industry gains were coupled with modest job growth in manufacturing, which added 700 jobs last month, as well as mining and construction jobs, which produced 1,000 new jobs.

The July report showed more new positions than June, when Florida added 13,500 jobs, and are a slight improvement over July 2016, when Florida businesses added 16,400 jobs.

The Sunshine State’s total was good enough for second place among the individual states tracked in the report. Texas took the top spot with a gain of 22,200 new private-sector jobs, with fellow large states California and New York coming in at 14,700 jobs and 6,000 jobs, respectively.

Illinois typically lags behind the four most populous states in job growth, but managed to take the No. 4 spot with 6,800 new jobs added last month.

The South, which includes Florida, Texas and 14 other states, was once again the top region in the report with 84,000 new positions. Western states added 38,000, followed by the Midwest with 36,000 and the Northeast with 19,000.

The Regional Employment Report is produced by ADP and Moody’s Analytics and is based on data released by the Bureau of Labor Statistics as well as ADP’s in-house payroll data. The next report is scheduled for release Sept. 7.

Lenny Curry shrugs off Moody’s mixed review of pension reform

On Thursday, Jacksonville Mayor Lenny Curry took reporters’ questions, and primary among them was one about Moody’s offering mixed reviews of his pension reform package.

Curry’s pension reform, covered exhaustively here, included moving new hires to defined contribution plans, imposing a sales tax extension to deal with legacy defined-benefit costs, and boosting the city’s contribution to 25 percent of payroll on these DC plans.

Moody’s had caveats.

“Jacksonville’s reliance on future revenues, rather than current contributions, to address its pension underfunding will continue to negatively impact our key credit metrics related to its pensions … because we do not consider future revenues as pension assets – while city contributions are going to be reduced … Jacksonville will also provide costly new benefits and salary increases under the plan, which it can only afford because it will defer a significant portion of its legacy pension costs to the 2030s,” reads the report.

On Thursday, Curry addressed the Moody’s report for the first time.

“It also says we got out of the pension business. This has been an almost two-year process — pension reform,” Curry said.

“It’s done now. We’ve solved the problem. There’s no new information here. We meet with the ratings agencies regularly. I’ve met with them a number of times since I’ve been in office,” Curry added.

“It was a very public campaign with taxpayers — 65 percent of them said yes. City Council ratified it numerous times. We’ve solved the problem. All the information’s been laid out for two years. And we’re trucking on,” Curry said.

Curry added that his team has a “great relationship” with the ratings agencies, which understand how the city is managing its budgets.

“It’s over. And we’ll continue to work with them on what’s best for Jacksonville, and managing our credit ratings,” Curry said.

Expect more reports from the ratings agencies in the near future, Curry said.

Moody’s on Jax pension reform: Buy now, pay later, assume risks

Just as films and books have reviews, the municipal bond sector has its own critiques from bond ratings agencies.

In the case of Moody’s, which dropped its report Wednesday on Jacksonville’s status after pension reform, the writeup boils down to six words: “buy now, pay later, assume risks.”

And Moody’s also asserts that there may be a ceiling in terms of how the agency will see Jacksonville’s performance: “Jacksonville’s reliance on future revenues, rather than current contributions, to address its pension underfunding will continue to negatively impact our key credit metrics related to its pensions … because we do not consider future revenues as pension assets – while city contributions are going to be reduced.”

“By eliminating defined-benefit pensions for new employees, the city will shed investment performance risk over time. However, Jacksonville will also provide costly new benefits and salary increases under the plan, which it can only afford because it will defer a significant portion of its legacy pension costs to the 2030s,” reads the report.

“The city’s pension reform efforts come at a cost. While the city will carry no investment performance risk with the defined-contribution benefits for new employees, it will still contribute 25% of payroll for public safety employees. Public safety employees do not participate in Social Security,” the report adds.

Benefits, meanwhile, can be described as a mixed bag: “The longer that the sales tax for pensions must stay in place, the more difficulty the city could face in garnering support for other revenue resources, should the need arise. On the other hand, the city will immediately begin shedding investment performance risk relative to the status quo as new employees with only defined contribution benefits grow as a proportion of the city’s work force.”

Raises for city employees — delayed over a decade — are also factored into the mix.

“By 2020, these raises will increase the city’s salary spending by $120 million annually, which will amount to roughly 10% of the city’s general fund revenues by 2020…. Jacksonville will primarily offset these new costs by lowering its legacy defined benefit pension contributions…. The city will account for the dedicated future sales tax revenues as pension assets, which will reduce reported unfunded liabilities and thus lower its pension contribution requirements. Through this approach, the city will effectively lower its pension costs for the next 12 years, but it must significantly hike contributions once the new sales tax revenues become available.”

This describes the “deferred contribution” approach to pension reform that Mayor Lenny Curry‘s chief lieutenants sold the city on over many months.

 

Agenda set for city of Jacksonville bond rating trip

In 2015, the city of Jacksonville’s annual bond rating trip to New York City was a success, one which improved the city’s credit ratings and allowed the Lenny Curry administration to trumpet its successes well into 2016.

Among the accomplishments: Better Jacksonville Plan sales tax revenue upgrades in February to A+ from S&P and Fitch, with a A1 from Moody’s in that category; a March upgrade to AA in excise tax revenue from Moody’s; a July Fitch AA long-term credit rating and an AA issuer credit rating predicated on expectations the city will “continue to demonstrate a prudent level of fiscal management” and “continue to moderate the impact of its pension liability on the annual budget;” similar upgrades in the special revenue rating in August; and an upgraded commercial paper rating in September.

The itinerary for the 2016 bond ratings agencies trip to New York is now set, and departure for Mayor Curry, Chief Administrative Officer Sam Mousa, CFO Mike Weinstein, and Treasurer Joey Greive is slated for Wednesday, Dec. 7.

This sets up pivotal meetings on Thursday and Friday of that week.

Thursday sees meetings with Fitch and Moody’s. Friday offers some time with S&P.

Curry, a CPA by trade, was able in 2015 to make the ratings agencies feel confident about Jacksonville’s outlook, a confidence augmented by the passage of County Referendum 1, which unlocked the possibility of a dedicated sales tax to pay off Jacksonville’s $2.85 billion pension debt.

What will this year hold for the city’s appraisals by the ratings agencies?

Nearly 24K JEA customers remain without power Wednesday morning

Despite a contentious meeting between JEA CEO Paul McElroy and the Jacksonville City Council Tuesday evening, odds are good council members will continue their complaints regarding the slow pace of power restoration on Wednesday and perhaps beyond.

The JEA Outage Map shows 23,914 JEA customers are still without power as of 10:30 a.m. Wednesday, almost five days after the first outages.

After the storm on Friday, JEA established two sets of generic estimated restoration times for power outages. One of them was Sunday; the other was Tuesday at 4 p.m.

A decision was made late Sunday to promise, fatefully as it turned out, that power would be restored citywide Monday evening.

That clearly didn’t happen.

Despite crews assisting from throughout the state, the southeastern portion of the U.S., and even as far away as Missouri, the pace of power restoration has slowed this week, as exhausted line workers deal with the toughest problems affecting smaller groups of people in residential and rural areas.

Tuesday in the council chambers, CEO McElroy bluntly said “we blew it,” as council members blasted him for setting unrealistic expectations.

Meanwhile: the big news coming out of the council meeting wasn’t slow restoration, but the hard costs of the process, which McElroy estimated could reach $30 million for the independent authority that runs the city’s municipal utility.

The City of Jacksonville, meanwhile, estimated in the same meeting that costs of getting Jacksonville back to where it was before the storm could be as high as $100 million.

Jacksonville will have some resources at its disposal.

The city has an emergency reserve of $52.7 million, and much of that money can be used to get projects going.

Many of those projects, for both JEA and the city, will qualify for federal and state reimbursement.

As well, borrowing is an option for the city and the utility both.

The mayor’s office has touted improved perception from bond ratings agencies as recently as Oct. 3, with a press release asserting passing the pension tax referendum led Moody’s called the mayor’s victory a “credit positive,” adding it “represents a positive step related to Jacksonville’s most significant credit challenge.”

JEA’s own credit rating has never been better, meanwhile.

In April, the utility got its first AAA rating of all time.

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