Moody Blues: Fairfax County Gets 'Negative Outlook' From NY Bond Rating Agency

County officials argue that the rating ignores several signs of its financial stability and a number of ways it can raise funds if it needs to.

Fairfax County officials denounced a 'negative outlook' rating from Moody's this week as it prepares to sell $305 million in general obligation bonds. (Patch File Photo)
Fairfax County officials denounced a 'negative outlook' rating from Moody's this week as it prepares to sell $305 million in general obligation bonds. (Patch File Photo)
By Jennifer van der Kleut

As Fairfax County prepares to sell $305 million in bonds to raise money for schools, public safety and transportation programs, Moody's Investor Service slapped the county with a "negative outlook" tag.

The tag could lead to higher interest rates on the bond sales.

The County has enjoyed AAA ratings from the top New York bond rating agencies — Standards and Poor, Fitch Ratings and Moody's — since at least the 1970s.

All three agencies once again gave Fairfax County a AAA rating this year, citing county strengths such as "strong and diverse economic base, above-average wealth levels, and a history of adherence to strong financial policies." 

In addition, Standard & Poor’s and Fitch reaffirmed the stable outlook for the County—but Moody's did not. 

Ahead of the sale of the bonds, Moody's attached a "negative outlook" to the bonds' rating this week.

Fairfax County officials, including Sharon Bulova, chairman of the Board of Supervisors, responded strongly to the negative outlook.

"Fairfax County disagrees with Moody’s assignment of the negative outlook, as it ignores the county’s strong fiscal management and the strength of its tax base," a statement from the County on Wednesday evening read.

Moody's cited concerns over the county’s reserve balances and pension liability funding as reasons for the negative outlook. 

“While future tax base growth is expected to help offset these projected budget gaps, further budgetary pressures are likely to result from additional pension costs as the county increases its funding to meet the annual required contribution, which was underfunded by $48.3 million in fiscal 2013,” the Washington Post quoted from the ratings house's report.

Moody's also strongly tied the county's stability to the instability of the federal government because of the large number of federal workers.
County officials say they "disagree" that is a cause for concern.

"When Moody’s placed the county on negative outlook as a result of the indirect linkage with the federal government between August 2011 and July 2013, there was no appreciable impact," the county's statement argued.

"The county has demonstrated strong financial flexibility through a combination of reserves, budgetary cuts and tax rate changes. The county believes Moody’s approach has overemphasized reserves as an indicator of financial flexibility in their analysis, and that the county’s existing reserve structure is adequate based on the various other forms of financial flexibility available to the County, and the County’s conservative budgeting practices for both revenue and expenditures," the statement continued.

County officials also noted "the ability to raise its real estate property tax rate, and make significant expenditure reductions" as ways it can respond to fluctuations in the economy, calling them "additional areas of financial flexibility that have proven to be effective during the recession."

Furthermore, the County's statement said officials believe the negative outlook is more reflective of changes in the ratings firm's methodology than of the County's stability.

Projected Budget Shortfall, Sale of Bonds in January

On Jan. 23, as part of its annual capital program, the County will sell $305 million in general obligation bonds, to raise money for a number of areas, as it faces a projected $25 million budget shortfall for FY2015.

Of the $305 million, the County said $155 million will go to Fairfax County Public Schools, which face a projected deficit of nearly that much for the 2014-15 school year; $50 million for public safety, and $59.5 million for transportation and the Washington Metropolitan Area Transit Authority (WMATA).

According to the Washington Postsome of the $305 million will also go to finance debt incurred through previous bonds.

The Post said that the negative outlook from Moody's is likely to mean a higher interest rate on the bonds sales, though the county insisted in its statement that it does not believe the rating will affect the sale in any way.

"Negative outlook is not anticipated to have a meaningful impact on the county’s upcoming General Obligation Bond sale," said the county's statement.

What do you think of Moody's negative outlook on the County and its upcoming bond sales? 
Share your thoughts in the comments below.


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