Tucson Weekly: Risky Business (May 21

Thanks To A Lowered Bond Rating, Pima County Can Kiss $300,000 Good-Bye.
By Chris Limberis
THE BOARD OF Supervisors is about to embark on the biggest spending binge in Pima County history, one that will bury taxpayers underneath three-quarters of a billion dollars in debt.
And as supervisors select a marketer of the bonds on Tuesday, they have made Pima County a riskier borrower. Moody's Investor Services downgraded the county's general obligation bonds from Aa to A1.
"The county's current cash and fund balance positions provide limited flexibility to meet unexpected financial challenges," Moody's analyst Kristen Reifsnyder said in a report to the county.
Currents It's the same credit embarrassment the City of Tucson found itself in before shopping bonds in 1991.
While not dire--Moody's ratings range from Aaa on the high end to C as the riskiest--the downgrade will make it a little harder for the county to sell bonds and will jack up the interest on the money the county will borrow to finance the first round of construction projects, like the long overdue expansion of the Juvenile Court Center.
But unlike the city, which later regained a higher rating, the county's downgrade comes during robust economic times.
Taxpayers asked for it. Voters approved a record $711 million worth of bond projects a year ago. The money will finance everything from new jail space and courtrooms to parks, open space, sewers and roads.
Moody's downgraded only the general obligation bonds, which are repaid by property taxes. The first sale includes $42.5 million of general obligation bonds. County officials are hoping the portion of property taxes used to pay off debt won't have to be increased from its current level of $1 per $100 of assessed value ($100 for a $100,000 home).
The county maintained its A1 rating on sewer bonds, of which $40 million will be sold in the first sale. They are financed with sewer bills and hook-up fees. And the county earned a similar A1 rating on its first-ever highway revenue bond. The county will market $40 million of these this spring. For the first time, road construction and road improvements will be paid from gasoline taxes. Road projects, including those approved in the county's previous bond election for $219 million in 1986, were formerly paid with property tax revenue.
The county got better news from its other rating firm, Standard & Poor's. It gave an A+ in each of the three categories. Standard & Poor's ratings range from AAA to D.
The ratings provided no clear winners to those locked in the county's internecine battle. Moody's downgrade report does not specifically mention Kino Community Hospital, the target of Democratic Supervisor Sharon Bronson, although it faults internal borrowing among county departments. Meanwhile, the sewer bond rating was vindication for Wastewater Management Director George Brinsko, who is on Democratic Supervisor Raul Grijalva's hit list.
Some in and out of county government are trying to spin the downgrade as meaningless, given that the higher interest will be spread out over all county property taxpayers for the 10-year life of the bonds.
Really? Well ask any member of the Board of Supervisors if he or she doesn't have an ache in their district that would be cured with the $300,000 to $400,000 now headed down the drain.
Even the perpetually positive County Administrator Chuck Huckelberry concedes that the downgrade will have real bite.
"Had our general obligation bonds kept their rating, our street bonds would have had a higher rating. That means we would have had a better interest rate and less borrowing costs. Even if it's a $300,000 difference, it's still money we could use. The $350 million in street bonds approved represents only 20 percent of what we need," Huckelberry said.
THE RATING SLIP also may provide a wake-up call to the spend-happy supervisors. Despite being flush to fatten the biggest budget in history--one that will likely top $800 million--the county will be in serious trouble to find enough money to operate and maintain all the projects approved in the bond package. For example, the Juvenile Court budget will explode in one year, doubling to $22 million.
It's not as if Huckelberry hasn't been warning supervisors that they needed to budget for reserves. They could have at least paid attention last August when, in one of their few partisan votes, Grijalva, Bronson and Democrat Dan Eckstrom approved a $684 million budget over the objections of Republicans Mike Boyd and Ray Carroll.
Boyd and Carroll get no pass. Neither cited the depleted fund balance when they voted against the budget.
Budget approval came just three months after voters approved the bond package.
The trend to use up reserves has been a consistent one at the county. And while it can be argued that government shouldn't be taxing people at a level to build up big reserves, it's important during the periods before and during borrowing.
Boyd knows about running through reserves. In 1993, his first year in office, Boyd followed his then-mentor, Republican Supervisor Ed Moore, and Republican Paul Marsh to blow through a $20 million surplus left by the previous administration of County Manager Enrique Serna. It must be noted that the Moore-Boyd-Marsh majority managed to cut the county's overall property tax rate of $5.64 per $100: 24 cents the first year; 16 cents the next year; 8 cents the following year and less than 4 cents their last year. They did so by raiding the surplus, and the overall cut of 52 cents per $100 amounts to a gross savings of $4.33 a month for the owner of a $100,000 home. But those savings were devoured by increases in assessed value.
Those cuts underscore a basic budget conflict: Cut taxes now and risk paying later with higher interest rates.
It was not lost on Moody's, which noted the board's eagerness to spend unreserved fund balances.
Said Reifsnyder: "This trend is the result of management (Board of Supervisors) decisions to use reserves to offset the need for property tax increases."

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