Paying back municipal bonds issued by Forest Park could get costlier in the future.
That was the revelation near the end of Monday’s village council meeting. Rory Hoskins, commissioner of accounts and finances, told the board that, according to a Moody’s Investors Service report – one of the top credit rating agencies – the village owes nearly $15.3 million from the sale of municipal bonds. Because of this debt, Moody’s rating of the village has suffered, which could make it more expensive to pay back bond investors in the coming years.
“I’m told this is a pretty serious issue,” Hoskins said.
The sale of municipal bonds helps the village pay for, among other things, capital improvement projects. Higher bond debt and a steeper purchasing price could make it more difficult for the village to borrow and extend the time necessary to pay off the bonds.
Presently, the village’s bond ratings went from Aa3 to A1 for general obligation bonds, which account for $11.9 million of red ink; and from A1 to A2 for limited obligation bonds, which totals $3.4 million in debt.
Mayor Anthony Calderone said he was “disturbed” by the ratings, but noted that the downgrade was “very minimal.”
“We are not at any adverse credit risk,” Calderone said.
“That’s not what the report reflects,” Hoskins shot back. “It indicates that credit will become more costly.”
Both ratings are still considered good municipal bond scores. According to a grading scale outlined by the investment company Morgan Stanley Smith Barney LLC, both A1 and A2 “are considered upper-medium grade and are subject to low credit risk.”
This means that, despite its debt, the village still has good credit, and the interest on the sale of bonds will not skyrocket – at least right now. But the report does note that the years between 2007 and 2010 “reflect the deterioration of the village’s financial position.” In that time, the village drained $2 million from its general fund, and there were periods when revenue did not match what was budgeted – the village had a $2.1 million shortfall as of Jan. 31.
“We expect Forest Park’s financial position will remain pressured in the near term, providing limited cushion should unexpected expenditures or revenue pressures arise,” the report reads.
“They’re saying that the village is not operating in the correct fashion,” Hoskins said. “As we go into this next fiscal year, we really need to look at cuts in some of the discretionary spending in how we move forward.”
The report, though, points to some financial prudence on the part of village officials to combat the shortfall. The village downsized staff and reduced spending by $2 million between fiscal years 2009 and 2010, according to the report.
Hoskins’ announcement comes on the heels of a contentious board meeting two weeks ago, when Commissioner Mark Hosty berated Hoskins for making statements to the Forest Park Review about one-time revenue streams that supposedly helped balance last year’s budget. The issue of whether two, one-time revenue sources helped put the village’s fiscal year 2010 budget at a $200,000 surplus, is still a matter of debate, but Calderone volunteered to set up a meeting between the auditor and the Forest Park Review to “explain everything.”
The presentation of the Moody’s report furthered highlighted the board’s disagreement. Calderone said he received a “panicked call” – which he corrected to “panicked e-mail” when Administrative Secretary Sally Cody reminded him – from a Moody’s representative who tried four times to contact Hoskins to discuss the village’s finances. After the council meeting, Hoskins said he was unaware of any attempt by a Moody’s representative to call him. Cody sent the Review a copy of an e-mail that Moody’s sent Hoskins, which stated that a representative had, in fact, tried to contact him several times, but Hoskins failed to get in touch.
Commissioner Marty Tellalian asked Calderone why, if Moody’s contacted him, he
didn’t inform Hoskins.
“We hear that you’re aware of [Moody’s attempt to contact Hoskins], that your assistant’s aware of it, but none of us are aware of it?” Tellalian said. “It flabbergasts me to think that something like this comes to the village and we treat it so casually.”
“Thank you, commissioner; do you have anything further to report?” said Calderone, before calling for the board to adjourn.