After agency downgrades Anchorage’s credit rating, Mayor Bronson calls on assembly to limit spending, assembly demands answers from Bronson
A major credit rating agency downgraded the Anchorage Municipality’s bond rating slightly, citing the financial impacts of the pandemic, the 2018 earthquake, population decline, climate change and fiscal policy. the state. The move from AAA to AA + status has the potential to affect the interest rate at which the municipality can borrow money for major capital programs like school, road and park projects.
After the report was released, several members of the Anchorage Assembly, including President Suzanne LaFrance, and members of former municipal governments, questioned whether Mayor Dave Bronson’s administration had accurately described the financial situation and city options when presented to rating agencies.
In a written statement sent to media on Tuesday, the administration highlighted the deteriorating credit and negative outlook as evidence of overspending in the city’s recent budgets.
“The outlook for all ratings is negative,” said an S&P Global Ratings report sent with the statement.
“These notes are essential as we determine what the budget will look like over the next fiscal year,” Bronson said at Tuesday’s assembly meeting. “On the basis of this new information, I will have to consider, on the basis of the expenses of the Assembly, a bail leave. We cannot continue to spend more than we have. We cannot do things that interfere with the ability of our children and grandchildren to live and work in cities. We must establish our great city with successful foundations in order to build and grow. We, as elected officials, have a responsibility to start making informed financial decisions. We need to make responsible spending decisions to stay below the tax cap. “
[Anchorage Assembly approves 2022 city budget, eliminates several of Mayor Bronson’s cuts]
LaFrance demanded that the administration present to the Assembly and to the public exactly what it presented to the credit rating agencies, and said she had “real challenges with the information presented in the administration’s press release.”
“Depending on how information is conveyed to agencies, it can influence the way they make their decisions. For example, in the S&P documents it is noted that oil prices have recovered and not bed taxes. From our budget and finance meeting with administration last week, we know this is not true. If it hasn’t been communicated to the rating agencies then it’s a huge problem, ”LaFrance said.
In the mayor’s opening remarks at Tuesday’s meeting, Bronson criticized the assembly’s spending and called for a “time off from obligations.”
The administration’s statement also indicated a “negative fund balance of $ 40 million at the end of 2020 for the municipality.” The accounting behind this figure does not appear in the reports of the credit bureaus.
LaFrance argued that the city had no deficit and had accessed its fund balance to protect the community from a “one-time global pandemic.”
The S&P report cites the recent disasters in Anchorage as contributing to the city’s financial outlook.
“The capital expenditures of the 2018 earthquake, declining revenues from COVID-19 and cost and labor shortages associated with construction in Alaska, and delayed reimbursements from the Federal Emergency Management Agency ( FEMA) forced the municipality to draw on its reserves, ”reports S&P. noted.
“We believe that economic conditions are improving slightly, especially tourism compared to 2020, despite long-standing trends in population and job loss, and that a good management team is working to address these challenges, ”the report says. “However, given the significant challenges facing the municipality’s available reserves in the short term, we are lowering the score and changing the outlook simultaneously.”
Positive and negative changes in credit scores are often presented as a political bludgeon in municipal politics, presented as proof that policies are working or not working. Tuesday’s reports were sent out by the Bronson administration just hours before the Assembly took over the amendments to the budget proposed by the mayor, which aimed to reduce expenses by eliminating posts and programs. The Assembly made several changes to the budget, restoring funding for many municipal programs Bronson had proposed to cut.
Former Acting Mayor and current Assembly Member Austin Quinn-Davidson said the city expects to recoup much of the funds spent on the earthquake and pandemic with federal aid in FEMA disaster event and that she is intrigued by the city’s downgrade.
In May, during her tenure as acting mayor, she and her then chief of staff Jason Bockenstedt met with the agencies and received “stellar reviews,” she said.
“There is absolutely no reason for this rating to change over the course of a few months,” Quinn-Davidson said. “I mean, there’s just no reason – the facts haven’t changed.”
[Anchorage Assembly overrides 2 more Bronson vetoes]
A second report by Fitch Ratings also released on Tuesday maintained the municipality’s bond rating at AA + with a stable outlook, the same designation it had received the year before.
The main reason for the downgrading of S&P, according to the report, is that the double emergency of the 2018 earthquake and the economic fallout from the pandemic have caused the municipality to spend its cash reserves below the 10% of spending typically. retained by AAA rated entities. .
If the municipality fails to restore the fund balance to levels it has maintained in recent years, as well as an additional 2-3% earmarked for emergencies, the outlook could worsen.
At Tuesday’s meeting, City Manager Amy Demboski told Assembly members that one of the agencies “made it clear that while the municipality continues to spend as it has in recent years, it could further lower the rating of our bonds next year. ”, although she did not specify which agency.
“One of the rating agencies kept us stable. Another agency noted that we had exploded our savings, ”said Bill Falsey, who served as city manager of the Berkowitz administration and was recently hired to work as an outside legal adviser to the assembly. Falsey also unsuccessfully ran for mayor earlier this year in the election Bronson ultimately won.
“It makes me wonder what information has been passed on to them, as the municipality certainly has a lot of options to restore these emergency funds,” Falsey said.
He noted that Anchorage, like many other cities and municipalities across the country, is still awaiting reimbursement from FEMA for costs incurred during the pandemic, for functions such as running a temporary emergency shelter outside of Sullivan. Arena and the establishment of testing and vaccination clinics. This money, which would eventually have to come from the federal government, would replenish part of the reserve funds. Falsey said the mayor’s remarks appeared to emphasize the modest downgrade in the rating and the fact that much of the S&P report noted that the city’s fiscal fundamentals were generally strong.
[Anchorage retailers scramble to prepare for Black Friday, with continuing supply and labor challenges]
“What gets lost in the press release is that if you remove the earthquake and COVID, you’re fine,” Falsey said. “This seems to place a strong emphasis on a fairly transient situation that is not the result of irresponsible spending decisions. “
Anchorage lost revenue during the pandemic that would typically be collected from hotel and tourism taxes. Local construction projects were hampered by labor constraints and supply chain issues that slowed planned construction.
Another factor contributing to a negative outlook is the population decline: the report notes that between 2013 and 2020, the city’s population fell by 13,000.
“We consider the municipality’s environmental risks to be higher than the industry standard given Anchorage’s history with earthquakes and changing weather conditions,” the report said.
Decisions taken by the legislature also have an impact on the local budget. Anchorage, like other communities across Alaska, has had to spend more since the state cut its school bond debt repayment program. In 2021, that left a gap of $ 20.4 million which the city closed by raising property taxes.
The S&P report notes that most of the municipality’s revenue, around 70%, comes from property taxes, which have so far remained stable despite population loss and the statewide recession. The agency pointed out that the city had also increased its MOA trust fund, adding $ 220 million from the sale of its electric utility. Under the city charter, this fund can generate up to 5% transfers to the general fund, unless other transfers are approved by voters.
“At this time, Anchorage officials do not plan to advocate for changes to the formula,” the report said. “The Anchorage Municipal Code describes how the trust fund is managed and the Assembly can make changes at any time. “
Bockenstedt, who also served as chief of staff under former mayor Ethan Berkowitz, said when working with the city officials would meet with credit rating agencies for two hours and give a detailed presentation, with 40 to 50 slides.
“Without seeing this presentation, it’s a little difficult for me to pinpoint some of the things that ended up in the S&P document,” Bockenstedt said.
LaFrance said the Assembly worked with the previous administration to diversify its revenue so that it was less dependent on state and federal money, boosting Anchorage’s bond rating through the sale of the city’s electric utilities, its 10-cent-per-gallon fuel tax and the city’s alcohol tax.
Some of the delays in FEMA reimbursements, Bockenstedt said, are due to projects having to be fully completed before the federal government sends the money to local governments. Repairs to the facilities damaged by the earthquake are still in progress. Likewise, municipalities across the country are wondering how to handle sprawling reimbursement procedures with FEMA to cover expenses related to COVID-19.
“Every city in the country is facing this,” said Bockenstedt.