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Moody’s may downgrade SF’s bond rating

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A major credit ratings agency is considering downgrading Santa Fe’s bond rating because of what it says is the city’s troubling ratio of pension liabilities to operating revenues.

Santa Fe’s pension liabilities are six times that of its operating revenue, according to Moody’s Investors Service. The agency is also looking at Santa Fe County, Las Vegas, N.M., and Alamogordo.

“The local governments whose ratings have been placed on review were determined to be significant outliers in their current rating category,” Moody’s managing director Timothy Blake said in a news release dated April 17.

But Santa Fe officials contend that Moody’s calculations are wrong. Finance Director Marcos Tapia said Monday that Moody’s only looked at Santa Fe’s general fund revenues, which are about $72 million, instead of its entire operating budget and revenue sources, a much greater $320 million.

“The numbers are totally off,” he said. Other rating agencies have taken much more expansive view of city revenues, Tapia said.

The city’s financial advisors have objected to Moody’s report and even asked for a retraction, Tapia said.

Thomas Lemmon, a spokesperson for Moody’s, said Monday the agency’s review of Santa Fe’s rating is still underway.

Lemmon confirmed in an interview that Moody’s has heard from Santa Fe officials and the city’s concerns are being looked at. In a later email, Lemmon added that “we were aware that the city had a different view of what the ratio should be.”

The revenue that the city maintains Moody didn’t take into account includes so-called “enterprise” funds such as water and parking revenues. Most of the general fund comes from taxes.

Lemmon declined to discuss in detail Santa Fe’s inclusion on the review list, referring instead to the generalities of the April news release.

A Moody’s chart released in April indicates the agency used Santa Fe’s general fund and debt service when creating the pension liabilities/debt service ratio.

Santa Fe covers 75 percent of the pension payments its non-police employees make to the statewide Public Employee Retirement Association pension program.

Moody’s announced in April it was placing Santa Fe’s bond ratings under review for possible downgrade along those of 28 other local governments. Among those 29 governmental entities, according to the Moody’s announcement, Santa Fe’s ratio of pension liabilities to revenue was the worst, although Lemmon said other local governments around the country have worse ratios.

The news came as Moody’s said it was revising the way it analyzes and adjusts pension liabilities as part of its credit analysis of state and local governments.

“These changes reflect the rating agency’s view that pension obligations are a significant source of credit pressures for governments and warrant a more conservative view of the potential size of the obligations,” a Moody news release said.

The news release said that Moody rates more than 8,000 local government entities, and less than 1 percent with general obligation bonds or equivalent ratings were placed under review because of the pension adjustments.

Last week, Moody’s announced it was cutting Chicago’s ratings by three notches, saying pension payments are increasingly straining the city’s budget and competing with other priorities.

Pension costs have been cited as a reason Detroit recently filed for bankruptcy.

Santa Fe hasn’t used Moody’s services since 2008, according to Tapia. The city relies on Fitch Ratings and Standard & Poor’s agencies, both of whom have used the city’s entire budget and other detailed information, and given Santa Fe stellar ratings, he said.

New Mexico’s Public Employees Retirement Association pension system comprises more than 300 public entities.

PERA executive director Wayne Propst said Monday it’s unclear to him what information Moody’s is working with.

“Santa Fe is part of the overall PERA fund. We report unfunded liability as a total for all our entities. How Moody’s was able to allocate something we don’t allocate is a question,” Propst said.

“New Mexico is not Detroit, Santa Fe is not Detroit,” Propst said. “And drawing conclusions from what is happening in Detroit and making them apply to what is happening in New Mexico doesn’t really (apply).”

Propst pointed to recent legislation designed to shore up New Mexico’s retirement system, approved by the New Mexico Legislature and signed into law by Gov. Susana Martinez in April.

“That pension reform is expected to put us back on the path to financial solvency and allow us to pay off unfunded liability,” he said.

Moody’s did say in its April release that, as part of its review, analysts will factor in the success of pension reforms enacted since fiscal year 2010-2011, the source of the data used in placing the governmental entities under review.

Included in New Mexico’s recent pension reform legislation was a requirement that employees who earn more than $20,000 annually put more of their paychecks into the state’s pension fund, among other things.

The Santa Fe City Council’s reaction was to unanimously approve a resolution directing city government to fund up to three-quarters of the 1.5 percent increase workers are now required to pay, a cost estimated at $723,492 in the 2013-2014 fiscal year. City staff noted that the 75 percent “pickup” by city government would be an extension of the city’s practice before the increase.

Tapia said the funding to pay for the increase came from job vacancy savings and is definitely sustainable in the short term. Looking to the future, Tapia said the situation will depend on the economy.

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