ALBUQUERQUE, N.M. — Bernalillo County’s investment practices have put its pristine credit rating at risk, according to analysts at one of the major rating agencies.
Fitch Ratings warned investors this week about potential damage to the county’s AAA bond rating because so much of the county’s cash is tied up in long-term investments.
Fitch said the decision to issue a “negative rating watch” for Bernalillo County “reflects a heightened probability of a downgrade over the next few months.”
A credit downgrade could have real financial consequences by increasing the county’s interest rates when it borrows money to pay for roads, parks and other major projects. The AAA rating helps the county borrow at incredibly low rates, in the neighborhood of 2.3 percent.
Bernalillo County’s general-obligation bonds – which fund the traditional capital program that goes on the ballot every two years – now hold a AAA rating from Fitch, the highest issued by the agency. A separate set of county bonds, backed by gross-receipts tax revenue, has the next highest rating: AA+.
In a news release, Fitch said the county faces “thin cash balances” through the summer. The agency also noted that County Treasurer Manny Ortiz has sold investments before maturity at “modest losses” to help improve cash flow.
“The Negative Watch reflects the county’s substantially reduced cash flow margin due to increased investments in long-term securities,” Fitch said. “The shortfalls developed with a deviation from past investment practices by the current and past county treasurers.”
That analysis echoes criticism from the County Commission and other financial advisers who’ve reviewed the county’s investment portfolio. County investments have lost some $18 million in value, triggering budget cuts and other belt-tightening, county officials say.
The County Commission last year unanimously approved a vote of “no confidence” in Ortiz, who has served as treasurer since the beginning of 2013. Before that, he worked as the county’s investment officer, under then-Treasurer Patrick Padilla.
The two switched jobs after Ortiz won election, with Padilla staying on as investment officer. Padilla left the county in December, however, to focus on his bid for state treasurer.
Ortiz, meanwhile, faces a recall campaign. A state district judge last month agreed to allow signature-gathering to begin after finding “substantial evidence or probable cause to believe that Mr. Ortiz has committed misfeasance or malfeasance” in the management of county investments.
Ortiz said Wednesday that he had no comment “at this point” on the Fitch announcement.
County Manager Tom Zdunek said he and other county executives will visit the rating agencies in person to provide an overview of county finances and answer questions.
The AAA rating, he said, is “tough to get and easy to lose.” But the county has strong reserves – about five months’ worth of operating expenses – and has managed its budget well, Zdunek said.
Commissioner Wayne Johnson said the county has been open and honest with the public about its financial challenges, and the Fitch announcement isn’t necessarily a surprise. But it would be “truly unfortunate” if analysts reduce the county’s bond rating.
“My hope is that when they’re reviewing the county and taking a look at the reasons for our current fiscal crisis … that they’ll also look at what we’ve done to address it,” Johnson said.
Fitch’s analysis wasn’t entirely negative. The agency noted that the county has hired an independent investment adviser to help restructure the portfolio and that a new investment policy adopted by commissioners imposes tighter restrictions on long-term investments.
The county’s debt levels are moderate, Fitch said, and are being paid off at a “rapid” rate. The agency also noted that the county has plenty of reserves.
Fitch said its ratings apply to about $255 million in county bonds.
“The county’s operating performance remains strong, reflected in the maintenance of high, albeit illiquid, unrestricted fund balances,” Fitch said.
The agency added: “The Negative Rating Watch reflects a heightened probability of a downgrade over the next few months. While it appears the county has taken swift corrective action, Fitch is assessing the county’s cash management practices’ impact on the overall credit profile.”