October 2, 2012

Agency downgrades Atwater's bond rating

Long-term effects from the city's financial crisis became apparent recently as a bond-rating agency downgraded Atwater's status.

The downgrade by Fitch Ratings moves the city from an investment grade to a noninvestment grade, meaning it could be more difficult and more costly for the city to get financing.

The Sept. 28 demotion to BB from A- was the result of imbalances in the city's general, water and sanitation funds, which led to a brisk reduction of Atwater's pooled cash resources, according to Fitch. The pooled funds were whittled down to $6.3 million by August from the $17.7 million reported in the 2011 fiscal audit, the bond-rating agency says.

Though it's unknown how much money may have been transferred between funds, its clear that because of the overall depletion of its cash balance, the city has supported operations with restricted funds, according to Fitch.

A few years ago, the city issued $19.6 million in bonds to pay for its waste-water treatment plant, which city officials say was done to comply with stricter environmental standards from the state.

"Failure by the City Council to bring structural balance to the general fund, water utility fund and sanitation fund within the immediate future could ultimately impair the city's ability to accumulate sufficient funds to make sewer bond debt service payments without a draw on the (debt service reserve fund)," according to Fitch.

With a general fund deficit totaling more than $3 million and deficits in the water and sanitation funds, the city is facing a fiscal crisis that is expected to include layoffs and other tough decisions.

During a special meeting today, the City Council will consider declaring a fiscal emergency, which would be a step toward bankruptcy -- something Fitch noted in its downgrade.

Some city officials also have said that as many as 25 layoffs, some possibly coming from public safety, could be announced today.

The fiscal emergency was put off from a Sept. 19 meeting -- another indicator the city is slow to respond to the crisis, according to Fitch.

"The City Council's lack of leadership to date in addressing budgetary issues to ensure adequate operations and the use of system resources is a significant concern," a news release from Fitch reads.

However, Mayor Joan Faul said Atwater has the money set aside to pay for its bonds.

She described today's meeting as an important one, noting that she hopes a fiscal emergency will be declared so the city will have more room to revisit contracts with employee groups.

"Right now, we just want to continue conducting business," Faul said. "That's our No. 1 thing, is to meet our obligations. Our future is to make our payroll."

Today's open-session meeting will start at 7 p.m. in the City Council chamber at 750 Bellevue Road in Atwater.

Reporter Mike North can be reached at (209) 385-2453 or mnorth@mercedsunstar.com.

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