Tuesday, April 29, 2014

Moody's Sours on LP

Last week Moody's Investors Service, a New York commercial credit rating outfit, downgraded the bond rating for LP's guaranteed revenue sewer bonds from a rating of Aa2 to Aa3. This rating affects all the township bond holdings and more importantly impacts its ability to cheaply borrow funds into the future for projects such as road paving and capital improvements.

I spoke to township manager Richard Gestrich on this subject Friday afternoon (4/24) and he told me substantially the same thing as was reported by LP TAP before I had a chance to write up an article, so I won't repeat that conversation here; you can check it out for yourself.

While Gestrich's outrage about the changes in rating methodology and his feelings that the township was victimized in its treatment by Moody's may be legitimate, it's worth noting that no surrounding townships were similarly lowered, nor was Methacton School District's bond rating (although their business manager recently mentioned in a school board meeting that he 'is concerned' about eroding tax revenues in the district, a harbinger of a potential downgrade). Anyway, it's all about the ability to repay debt, which obviously Moody's sees as a potential problem brewing for LP.  The Board of Supervisors should be very concerned about whatever is giving Moody's agita because a downgrade is, any way you cut it, a big deal.  Moody's earns their keep by risk rating bonds much like auditors review loan portfolios and giving people bond ratings upon which they can make investment decisions; it does not serve their purpose to issue random downgrades without a solid reason.

I did ask Gestrich whether our Finance Committee was aware of the downgrade and if so, what they had to say about it. I noted that according to the Township's website, this committee did not appear to have met for months (although I have heard that they do meet, and Gestrich has publicly referenced this committee meeting, I don't know how 'public' those meetings are since there no agendas or minutes). A constituent who was tapped to serve on this committee told me over the weekend that he was frustrated with it because they sought him out to serve, and he was eager to do so, but then they never met. Gestrich told me he believed the Finance Committee was going to meet Monday evening, April 27.

(As a follow-up, Gestrich told me in a 5/1 email that he had passed the full Moody's report to Finance Committee member Lucien Calhoun, who is also with the Delaware Valle Finance Authority). He said "Lucien opined that since the Township remained at a Prime 1 rating, that it would not make a difference on our interest rates going forward".

Moody's downgrade comes on the heels of a glowing audit review which Gestrich presented in March to the BOS. While we ended 2012 with a thin balance in the general fund going into the next year, we had a much more comfortable cushion going into 2014 to the tune of almost $1.4 million, which was attributed to increases in earned income taxes and real estate transfers. After the BOS voted late last year to raise taxes for the first time in ten years, Chairman Eckman stated earlier this year that the Board expects to give more frequent financial updates to residents.

Among the reasons Moody's provided for the downgrade was 'continued erosion of tax base'. This is something I've been sounding the alarm about for some time. In recent years our Board of Supervisors seemingly had a policy of harassing and obstructing businesses from coming here and bringing jobs, revenue, and taxes and fees with them (sometimes spending ridiculous tax dollars in legal fees to do so). While this environment was primarily driven by former supervisor/chair Rick Brown, a couple folks who have supported those actions are still serving. Chasing out or creating a less-than-welcoming, hostile business environment for proposed businesses like the American Revolution Center, the YMCA, Bestline, WaWa and others has a cost.  You can't provide services without adequate revenue streams coming in and you will surely have a harder time borrowing money.

It pains me to drive through West Norriton, King of Prussia and Upper Providence and see not only new businesses that went there instead of here, but also businesses that used to be here, but have moved to those communities. It is also heartbreaking to drive through the township and at every entrance be greeted with an empty building...the former Collegeville Inn...the former Bud's Bar....the former Norristown Ford...nobody seems to be focused on making it a priority to find suitable uses for these properties or changing the zoning so that they can be repurposed. 

Also, former township manager Joe Dunbar raised a concern circa 2010 that the LPT Sewer Authority appeared to be using capital reserves to fund operations and presented specifics. Then, when former supervisors Brown and DiPaolo got control of the BOS, they dumped the auditor who developed the findings, Maillie Falconero. As the Township is the guarantor of all township debt, including the Sewer Authority, I can see why this would have been concerning at the time and could be having an impact now.

A damning move like this from Moody's tells me that Job One for our BOS ought to be to get the word out ASAP that we are not only open for business but we will bend over backward to bring you here and try to work with you. Stop being a NIMBY township and reverse Rick Brown's legacy for LP: a lowered bond rating.


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