Looking Here, Missing There

A story in Wednesday's Commercial Appeal about Tuesday's City Council meetings raises a question and fails to answer another.

Reporter Jacinthia Jones writes:

...Public Financial Management told council members that the city's bonds were competitive and attractive to buyers.

All of which, they said, came despite a recent downgrade by Fitch Ratings, one of three major bond rating agencies.

Fitch downgraded the city's general obligation debt rating a notch last fall from AA to AA-minus. Two other agencies retained their ratings, but placed negative outlooks on the city.

Council members didn't learn about the slippage until earlier this month....

[City Councillor Carol] Chumney wasn't convinced everything was as rosy as was being presented.

"I'm still not convinced on the Fitch issue," she said. "I have a national report that tells me something different. I can't just take what you (financial advisers) say. We need to stop spinning stuff."

Doesn't anyone on the City Council or their staff read the Memphis Business Journal? On October 12, 2004, they wrote:

Fitch Ratings has downgraded its rating on Memphis' $868.6 million in outstanding general obligation bonds to 'AA-' from 'AA,' with a rating of "stable."

Because of the connection between the city's rating and those of the Memphis and Shelby County Sports Authority, Fitch also has downgraded the Authority's $202.3 million in revenue bonds, series 2002, to 'A+,' with a rating of "stable."

I don't see how it was "hidden," but I do wonder at communications around City Hall.

Read along in the MBJ story and you see this:

The downgrade is based on a recent weakening in financial operations, resulting in part from over-estimates of revenues during the current economic slowdown and Fitch's belief that regaining balance in the near term will be difficult.

Unaudited results for fiscal 2004 show revenues well below budget and the fourth consecutive year in which sales tax revenues were below budget.

Expenses were well above budget, partly due to a severe windstorm in the early part of the fiscal year. Officials therefore expect a significant drawdown, cutting the undesignated general fund balance in half, Fitch analyst Amy R. Laskey writes.

A revenue forecast done shortly after the fiscal 2005 budget was adopted shows revenues may again come in well below budgeted levels, requiring significant expense adjustments.

City management's goal of regaining prior fund balance levels by the end of fiscal 2006 presents a considerable challenge, according to Fitch.

That puts a different spin on Mayor Herenton's various budget moves now, doesn't it? Not only does he need to bring revenue and spending closer together, but he also needs to meet additional costs for more expensive bonds and to generate enough extra income to regrow the reserves. That's an awful lot of money.

I also have to wonder if the Council is pressing the Mayor's revenue forecasters to bring in reasonable numbers for a change? Or will we yet again have patent over-estimates used to paper over real budgetary problems? The CA story shows skepticism on the part of the Council, which is good. We can only hope the Mayor's people hear it and respond appropriately.