Spokane earns improved bond rating - City's lawsuits increase bond amount requirement
Spokane, WA - The city of Spokane's prospects for selling bonds improved Monday as a major rating agency removed its "negative outlook" and made it about $550,000 cheaper for the city to refinance some of its old debts.
The region has been hard hit in the current recession, with unemployment rising and retail sales falling, Moody's Investors Service said in a rating opinion.
But the city government has been quick to adjust to revenue problems, cutting costs, building up its reserves and keeping its debts "very manageable," the ratings agency said.
Legal battles over the River Park Square parking garage continue to be a problem reflected in the city's bond ratings, Moody's analysts added.
"Despite the current economic slowdown, Moody's expects the city to remain a vital center for activity for the region," the analysts said.
Like a homeowner looking to reduce mortgage payments, the city wants to pay off some $14.3 million in debts, a combination of bonds sold in the mid-1990s and more than $6 million borrowed for local projects on a line of credit.
Unlike a homeowner, the city borrows from bond investors rather than a bank. Rating agencies play a key role in determining what interest rate the city will pay.
Mayor John Powers, Council President Rob Higgins and other city leaders made a trip to San Francisco last month to lobby for the best rating possible on those bonds.
Moody's and the nation's other major rating agency, Standard & Poor's, have decided to keep the city's bond ratings where they are -- A3 from Moody's, BBB+ from S&P. But as a result of the meetings, Moody's announced it would drop the "negative outlook," an additional warning it placed on city bonds in 2001 because of the River Park Square dispute.
S&P is expected to write something positive about the city in the near future, said City Financial Officer Gavin Cooley.
The city didn't sell bonds for the River Park Square garage. That was done by a nonprofit organization. But when the garage revenues were way below projections, the city refused to honor an ordinance that called for a loan from its parking meter fund to cover rent, operations and maintenance.
City officials said there was no guarantee the money would ever be repaid, and if it weren't, that would be an illegal gift, not a loan.
"The city's ratings continue to reflect its reluctance to honor the financial commitments undertaken in connection with that project," the analysts said.
But the garage bonds were backed by revenues from the parking facility. The newly proposed bonds will be repaid by taxes, and there's no legal question about the city's ability to budget and assess taxes to pay them off, analysts said.
The garage was expanded in the late 1990s as part of a $110 million downtown mall renovation that also included a new Nordstrom, specialty shops, restaurants and a multiscreen theater. The mall development firm is owned by Cowles Publishing Co., which also owns The Spokesman-Review.
With the "negative outlook" removed from the bond rating, the city will be able to afford cheaper insurance for the bonds, which would raise the rating above A3, Cooley said. That could save as much as $140,000 in insurance payments.
Cooley expects the city to pay interest of about 2.8 percent on the bonds. The old bonds are being repaid at an average of about 5.5 percent.
Financial adviser Alan Dashen told City Council members Monday the overall savings on the refinancing is expected to be about $550,000.
"I think it's a very obvious refunding to do," Dashen said.
The city's bond rating probably will not improve as long as there
are legal problems over River Park Square, he added.
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