Moody’s Investors Services on Tuesday downgraded a rating tied to a $165.2 million general obligation bond issuance planned for this month, citing Fort Worth’s unfunded pension liability as the cause.
Moody’s, one of three rating agencies, lowered the city’s rating to Aa2 from Aa1. The last time that occurred was in 2008. It was upgraded in 2010. Aa2 is the third-highest available rating.
At the same time Moody’s said it has downgraded to Aa2 from Aa1 the rating on roughly $680.8 million in debt that is backed by the city’s property tax. But Moody’s called the city’s outlook “stable.”
The downgrading means Fort Worth will end up spending $460,000 more in interest over 20 years, said Aaron Bovos, the city’s chief financial officer.
“The Aa2 and downgrade reflects the city’s large and growing unfunded pension liability and growing fixed cost burden,” Moody’s said. “The rating and outlook also reflects the city’s large and diverse tax base that is expected to remain on a growth trend, average socioeconomic indices considering the large metro area, stable financial performance with adequate reserves and manageable debt profile.”
The bond issue is for $103 million in new money for the 2014 bond program and $62 million in refinancing. Voters approved $292 million in bonds in 2014 to be spent on fixing streets, improving parks and other projects.
The city plans to price the bonds on May 25 and close in June.
City officials met with the bond rating agencies in late April.
City Manager David Cooke said Standard & Poor’s or Fitch will release their ratings soon, but he doesn’t anticipate those being lowered.
“Moody’s is paying particular attention to” the pension issue, Cooke said. “They sent some signals with some of their questions that this was going to be an issue with them. At the same time, our financial picture is better this year than last year.”
The city has a $1.5 billion net pension liability. In January, the city learned it won’t be able to pay off its pension liability for about 72.5 years, which is up from 55.7 years last fall. Benefit cuts have been made and a task force is looking into other issues, but the pension interest and investments earning have not been what was anticipated.
Fort Worth and a growing number of other cities are being downgraded for pension issues. In October, Moody’s downgraded Dallas to Aa2 from Aa1, costing that city about $887,000 in added interest, and Houston was downgraded in March to Aa3, in part for pension issues.
Regarding other Fort Worth bond programs, Moody’s rating stays at Aa1 on $50 million in new money and $40 million in refinancing for the city’s Water Department, and an additional $19 million in refinancing on storm water projects.
Sandra Baker: 817-390-7727, @SandraBakerFWST