Moody's drops Sierra Madre water bond rating
By Brian Charles, Staff Writer
Posted: 10/06/2011 10:34:26 PM PDT
Updated: 10/06/2011 10:35:37 PM PDT
SIERRA MADRE - Credit rating agency Moody's downgraded the city of Sierra Madre's Water Enterprise bonds from AAA to an A bond rating due to insufficient water rate revenues, according to a report by the credit agency.
The downgrade does not affect current indebtedness or bond payments and Sierra Madre officials said Thursday the second year of an incremental rate hike approved in early 2011 will serve as the remedy.
"The bonds will be re-evaluated in another year, and assuming the revenue estimates and the revenues that rate payers are paying, we will regain our triple A rating," said Elaine Aguilar, Sierra Madre city manager.
Last year, rusty water pipes were paraded through Sierra Madre City Council meetings in an attempt to rally support for rate hikes. City officials said the hikes were needed to upgrade 2.95-square-mile city's water system that supplies water to less than 11,000 people.
City officials pitched the rate hike as necessary to keep the water system from falling apart and said nothing about a bond rating or bond indebtedness, according to John Crawford, resident and blogger for the Sierra Madre Tattler, who broke the story on his website early Thursday morning.
"When they first packaged raising the water rates, they pitched as the pipes were broken and the pipes needed to be fixed," Crawford said. "They didn't say it had anything to do with bonds."
It didn't take much detective work to discover the real issue was pulling in enough revenue to keep credit rating agency from dinging Sierra Madre's bond rating and making moves such as refinancing bonds next to impossible, he said.
"Later on Sierra Madre residents discovered that this was about the bond covenants," Crawford said.
Sierra Madre city officials switched tactics and repositioned the rate hike as necessary to satisfy credit agencies, but the public outcry had grown intense - there was massive opposition to the rate hike and the increase was challenged legally with the city eventually emerging victorious, he said.
The political scuttlebutt forced the City Council to hedge on a full-scale rate hike.
Instead of spiking rates high enough to meet the bond covenants requirement of 120 percent of funding for this year, the city slowly rolled out the rate increase and won't meet the revenue levels needed to satisfy credit agencies such as Moody's until 2012, Sierra Madre Mayor John Buchanan said.
"You trade-off coming fully up to speed on your bond covenants right away, against the need to bring your people along slowly ... and not hitting people with the increase right away," Buchanan said. "Of course the first proposal in front of us was for a steeper increase, but there was a second issue, the residents were opposed to a steep increase and we have a fair number of senior citizens on a fixed income."
Crawford blasted city officials Thursday for the quagmire left by not being forthcoming on the bonding issue from the beginning and a failed plan to keep the city from being downgraded.
"We pay more money and we still don't have a triple A rating."
Mod: One more thing. The 3rd most viewed article The Tattler ever produced is called "The Real Water Rate Misinformation." Written in November of 2010, it continues on this blog's Top 10 list to this day. The article details City Hall's less than honorable avoidance of our water bond issues back then, and how they only admitted to their problem when forced to by the people of Sierra Madre. The similarities to what is going on now are striking. You can link to this post by clickinghere.
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