Moody’s Investors Service downgraded the Park District of Forest Park’s bond ratings by one point to A2 from A1 on Oct. 25. The new rating was assigned to the two new general obligation bonds Series 2013A re-financed by the park district last month for $5.3 million.
According to the ratings company, reasons for the downgrade were attributed to a significant valuation decline of tax base which limits the district’s “revenue raising flexibility” at a time when the park district is planning to build a new recreational facility at the Roos parcel.
“Their rating process is reflecting some of the housing value loss, caused by foreclosures and lower selling prices,” said David Phillips of Speer Financial, longtime financial advisors to the park district. “For a community like Forest Park, reductions in equalized assessed value (EAV) have cost the district about $200,000 per year of lower property tax revenues,” Phillips said.
Phillips said over the 25 years of the loan his company estimated the Moody’s downgrade would add another $30,000 in debt service costs to the park district’s $5.3 million dollar bond issue.
Other than that, Phillips said the parks got a favorable interest rate for their bonds, for which Speer organized the bids.
“They got a great deal of 4.6 percent interest for 25 years,” Phillips said.
According to Moody’s, the bond rating downgrade was also influenced by the fact that the park district “delayed disclosure of audited financial results for fiscal 2012” and that the district had made “large recent draws on operating fund reserves.”
Phillips acknowledged the district’s audit was delayed, but said Moody’s analysis was only based on that to a small extent. “That was a minor factor in the conversation,” he said.
As for the “large recent draws on operating fund reserves,” Phillips said that was the district removing money from their general corporate fund to a capital fund to pay for the demolition of the Roos property.
“That money was set aside as a reserve for the development of the Roos property,” Phillips said. “When they took money and moved it, Moody’s looks at that as a reduction in liquidity.”
“But that’s what the money is for,” Phillips added. “The park district isn’t supposed to be a bank.”
According to the Moody report, the rating could go up if there was a substantial expansion of the district tax base valuation and a strengthening of Forest Park’s socio-economic profile, according to the report.
That’s just what will happen, Phillips thinks, when the Roos property is built into a brand new facility that he calls a “legacy project for the next 20 years.”
The rating could further fall if the park district experiences “declines in reserve and liquidity,” pays “large subsides to recreation center that pressure financial operations” or if the tax base or socio-economic profile erodes, the report said.
