As a result of the national debt ceiling issue effecting our nation’s government, Moody’s Investors Service recently placed Aaa RATINGS OF 162 U.S. PUBLIC FINANCE ISSUERS ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO REVIEW OF U.S. GOVERNMENT'S Aaa RATING . In an emailed communication received on July 28, 2011 by the Cobb County (Georgia) Board of Commissioners, Moody’s Investors Service informed the County as follows:
“We are contacting you to inform you that Moody’s Investors Service has placed your Aaa and related ratings, among others, under review for a possible downgrade due to our recent rating action on the US government. On July 13 we placed the Aaa rating of the United States under review for downgrade. This current action reflects our assessment that your rating may be affected by the potential credit weakening of the US sovereign rating.”
This action belies the strength and diversity of the County’s economy, which have long been cited by the leading credit rating agencies as evidence of its top rating of triple-A (see below). As recently as March 16, 2011, Moody’s praised Cobb County's strong management practices and comprehensive fiscal policies. Cobb County was not alone in receiving this potential downgrade notification. According to an attached July 28 press release, Moody’s indicated that 162 local governments including 66 cities, 53 counties, 29 school districts and 14 special tax districts received the notification. They went on to state that “…factors weighing on specific credits include high federal employment and exposure to capital markets disruptions.” The release also stated that “The ratings of these local governments, particularly those with a high economic dependence on federal activity, would be vulnerable to a downgrade of the U.S. government. Moody’s review following a U.S. government downgrade would focus on a local government’s reliance on capital markets, its dependence on federal revenues, its sensitivity to macroeconomic cycles, and its available financial resources to offset these risks.”
Moody’s stated that their local government reviews would take place over the next several weeks. It was disclosed during discussion with a Moody’s representative, their primary interests would be the following;
Local governments’ sensitivity to federal government activities; federal government employees within the local government jurisdiction; variable rate debt exposure; and financial flexibility of the local governments. Based on these four factors Cobb County does not believe it has any significant exposure.
Cobb County’s continued strong fiscal management and low overall debt burden brings stability in uncertain national economic times. In addition, through careful fiscal planning the County has held a Aaa rating from Moody's Investors Service since 1995, an AAA rating from Standard & Poor's since 1997, and an AAA rating from Fitch Ratings since 1996.
Cobb County has a strong history of taking decisive actions to meet its financial obligations. It has weathered projected deficits, taken programmatic reductions and eliminated positions to ensure an annual balanced budget. Cobb County does not borrow long-term for its operating budget and has maintained the required reserves as set forth by Board policy. At its most recent meeting the Board of Commissioners took actions to increase FY 2011 millage for the General Fund from 6.82 to 7.72, Fire District Fund from 2.56 to 3.06 and the Debt Service Fund from 0.22 to 0.33 to ensure that a structurally sound budget remains in place and County reserves maintained.
Despite many competing County needs that deserve funding during this challenging economic time, Cobb County has balanced its budget by making tough choices among competing priorities, adhering to risk averse, time-tested policies and engaging in highly successful, long-term fiscal strategies. Cobb County has maintained a structurally balanced budget and has a proven track record of doing what has been necessary to balance budgets every year, maintain essential services and adjust capital programs to meet recessionary challenges.
Cobb County’s most recent entry in the capital markets was the Spring 2011 issuance of its annual General Obligation Tax Anticipation Notes. While this is a short-term borrowing, Fitch, Moody’s, and S&P all assigned the financing their highest ratings and subsequently reaffirmed their triple-A long-term ratings on the County’s general obligation debt. As they reaffirmed the County’s top ratings within the last year, all three rating agencies cited the County’s strong financial management. Fitch noted “The County’s financial position remains healthy guided by strong financial management and ample flexibility.”
Moody’s indicated that “The County's sound financial position is supported by proactive management, comprehensive fiscal policies and planning, and healthy financial operations.”
Standard & Poor’s said, “Cobb County's financial management practices are still considered "strong" under Standard & Poor's Financial Management Assessment methodology. An assessment of strong indicates that practices are strong, well embedded, and likely sustainable.”
Cobb County is a robust community with a strong, diversified economy. In March, Moody’s noted, “Although the current recession is expected to slow the County's recently-strong rate of economic expansion, the County is well positioned to weather the downturn given the size and diversity of its regionally-significant local economy.”
The Board of Commissioners wants its citizens and bondholders to know that there have been no changes in the County’s debt management practices, its unfaltering commitment to bondholders, or its desire to maintain its historically low levels of debt while at the same time maintaining a high quality of service delivery to its citizens. Over the years, the business community in Cobb County has grown to be quite diverse and is not significantly dependent on federal support and/or federal jobs. Additionally, Cobb County’s conservative debt management practices and low debt burden significantly limit the County’s reliance on the capital markets.
The Board of Commissioners, management and staff of Cobb County intend to cooperate fully with the Moody’s Investors Service review and it is our hope and belief that a downgrade of the County’s debt rating will not occur.
That said, however, citizens, investors and potential investors in the County’s debt should know that if the ratings of U.S. sovereign debt are downgraded and the County’s rating is downgraded as a result, the value of the County’s debt could decline in the marketplace. Additionally, if the County finds it necessary to issue debt in the future for any purpose, a lower rating would result in increased borrowing cost in the form of higher interest rates.
Cobb County Management will continue to work with all three major rating agencies to ensure that Cobb County’s interests are protected.
James D. Pehrson, CPA
Director/Comptroller
Cobb County Finance Department