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.

 

A Study In Success: USB Me

What do Methacton High School students, Lockheed-Martin, and Junior Achievement all have in common? Why, that would be a model start-up small business called USB Me. And you can help some of those Methacton students win a national competition scheduled for next week (see below).

Last fall, several Methacton business students (juniors & seniors) were selected to participate in the Junior Achievement program in partnership with area business entities, one of which was Lockheed-Martin in Upper Merion.

If you’re not aware of this international organization and what they do, Junior Achievement (JA) partners with local high schools to foster business-education partnerships with the goals of delivering relevant, responsive, and innovative programs that build young people's entrepreneurial, ethics/character, citizenship, financial literacy, and workforce readiness skills – things that our public schools don’t focus on or necessarily do well.  Their cooperative partnership programs within the business community help to inspire and empower young people to shape the future by igniting innovation, entrepreneurship, leadership, and teambuilding.

Lockheed, which for years operated under General Electric’s corporate umbrella as GE Aerospace, is primarily a defense contractor most famous for developing cutting-edge rocket and aerospace technology. It was purchased a few years back by Martin Marietta, and then merged with Lockheed to become the company it is today. Several of my closest friends, neighbors and constituents work or worked for them and are indeed among the best and brightest , innovative minds America has to offer. Their technology was significant in the effort to put a man on the moon back in the 60’s during the era of the Cold War and the ‘space race’.

Under a JA-corporate sponsorship, students come up with an idea for a business product, and  with the guidance of their corporate mentors, determine its viability, figure out how to produce/manufacture it,  assess what it costs to produce and how to price it, how to raise investment money, how to name, market and sell it, and then return dividends to their investors. They elect a corporate Board of Directors from among their ranks to oversee their venture, and a president & Chief Executive Officer, Chief Financial Officer, VP of Marketing, VP of Sales, etc.

Additionally, each team identifies a local charity which will receive a portion of the proceeds of any sales revenue, so they also learn how to be good corporate citizens.

The team assigned to Lockheed, comprised of students from several area schools, listed below, including Methacton, developed a product called “USB Me”.  It’s basically a flash drive that can be worn as a wrist band/bracelet, so it’s always close at hand when you need to save a report or research.  The target marketing groups were middle school, high school and college students, as well as teachers.  

The USB Me team did quite well with their product, especially in terms of pre-sales and execution of their business plan. USB Me was named the Overall Best Company at the JA  Regional Competition this past spring and was selected to participate in the JA North American National Student Leadership Summit in Washington, DC next week.

USB Me was one of only 15 North American teams selected to attend this conference and compete to see which is the best Junior Achievement company in North America. 5 students were selected to represent the team in Washington; 4 are from Methacton (one is my son Wesley, entering his senior year) and 1 is from Coatesville Area School District.  

Teams are judged in three areas: their company "annual"/financial report, trade show booth, and promotional video. 

With regard to the report, the award for NYSE Best Financial Performance is at stake. NYSE representatives will select 5 finalists from the 15 competing teams;finalists will be interviewed by NYSE reps to evaluate criteria such as profitability, employee earnings, product quality, operational efficiency, leadership and stockholder expectations.

The JA Social Media Award will be presented at next week’s event to the team whose promotional video has the most“likes” based on a cumulative total from both Facebook and You Tube at the conclusion of the voting period (July 27). You can help! Do the Methacton team members a favor and vote for the USB Me video on You-Tube or Facebook! (results are cumulative, so please do both). Videos can be accessed using the following links:

and on Facebook here .   

The trade show booth winner will be determined next week at the competition based on interviews with each team member and observing their professional conduct, appearance, behavior, and how they work their booth to promote their product.

Other local companies which participated in sponsoring area high school students included The Vanguard Group, KPMG, SAP America, Aqua America, and Bimbo Bakeries  USA. In addition to Methacton, other area high schools with students participating in JA were Perkiomen Valley, Great Valley, Archbishop Ryan, Penncrest, Upper Darby, and Coatesville.

I think that in the current political environment which seems to villainize and/or take credit for successful business enterprises, and an economy that arguably stifles innovation and economic prosperity, the fact that a program like this is still around and flourishing, and that our high school students understand the value of entrepreneurship and have an interest in working with corporate mentors to learn the skills they need to succeed, gives me great hope for our future generations.  

One of the nicest aspects is that a 1981 Methacton grad (and classmate of mine), Gerri Vattimo, is the JA Company Program Manager, so if you would like more information about JA or corporate sponsoring of a JA group, please contact her  at gerri.vattimo@ja.org, and be sure to check out the JA of the Delaware Valley website at  http://philadelphia.ja.org/home.html .

Please join me in wishing the best of luck to the Methacton team in DC next week!!