Park Ridge’s bond rating downgraded

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Updated: February 20, 2012 8:20AM

Moody’s Investors Service has downgraded the city of Park Ridge’s bond rating and assigned a “negative outlook” following the city’s recent borrowing of $7.5 million for flood-mitigation projects and pension obligations.

Moody’s downgraded the city’s rating from Aa1 to Aa2. The city’s rating remains “high quality” under Moody’s rating system, but is now two grades below the best rating given by the investment service.

Bond ratings largely affect the interest rate municipalities will pay on bonds issued. The city now has $45.6 million in outstanding general-obligation bond debt, according to the Moody’s report.

The investment service cites the “deteriorating health of the city’s general fund” as a reason for the bond-rating downgrade, in addition to the general fund’s support of other budget funds that are running deficits, mainly the Uptown Tax Increment Financing fund and the city’s emergency telephone fund.

The report provided to the city by Moody’s indicates that $5 million in general-fund revenues have gone into the TIF fund to cover expenses within the recently redeveloped Uptown area. The TIF is not expected to generate enough revenue to begin reimbursing the general fund until 2017.

The city’s emergency telephone fund, which helps to cover the cost of the 911 dispatch system, is funded through surcharges on land-line and mobile phones, as well as money from the general fund. The phone surcharges are not enough to cover all of the 911 system’s expenses, City Manager Jim Hock said.

“Over the years, the general fund has increasingly subsidized decreases in revenue from that tax,” he said.

The general fund is the city’s main operating fund and pays a number of city expenses, largely salaries, benefits, police and fire pensions, and contractual services. Property taxes, sales taxes, license fees and other taxes make up some of the primary revenue sources for the general fund.

According to Moody’s report, the city’s bond rating could improve and the negative outlook be removed if reserves in the general fund, Uptown TIF fund and the emergency telephone fund improve, and the general fund’s support to other funds decreases.

The city’s rating could drop further if there is a continued drawing down on general-fund reserves and if the fund continues to support the Uptown TIF and emergency telephone funds, the report states.

The city is now not meeting its fund-balance policy of having enough money for three months of operating expenditures on hand, Moody’s said. The city also had three years of operating deficits in the general fund between 2007 and 2010, the report states.

Park Ridge Finance Director Allison Stutts said Moody’s was preparing to review the city’s finances just prior to the bond issue, but the city asked that it occur after the process was complete. She acknowledged that the under-performing TIF fund “is our biggest concern,” though there is little the city can do about the performance of the Uptown TIF District.

Park Ridge Mayor David Schmidt called the bond-rating downgrade a “wake-up call” for the city.

“We are still in a precarious situation and we have to treat this budget process as if we are in a precarious situation,” Schmidt said during the City Council’s first meeting on the proposed 2012-13 budget Jan. 11.

The proposed $60-million budget shows a small surplus in the general fund and a $2.6-million deficit across all funds.

The city recently issued $5.4 million in general-obligation bonds to fund several sewer-improvement projects, plus another $2.1 million was issued to cover pension expenses related to an early-retirement incentive passed by the City Council in 2007.