BROOKSVILLE — With tens of millions of dollars of utility projects still on the drawing board in Hernando County, recent word that Moody's Investors Service has downgraded the county's bond rating worries some county officials.
The downgrade from an Aa2 to an Aa3 rating, the first the county has had in recent memory, could mean that interest rates will rise on future loans, costing county utility customers more money. The amount could be significant, given the size of some of the planned work, including a $40 million upgrade to the wastewater treatment plant at the Hernando County Airport, said Amy Gillis, the county's finance director.
The clerk of the circuit court and Gillis have been warning county leaders of a bond rating drop — which is a measure of a fund's fiscal health — since 2009.
"As we move forward, the county needs to pay serious attention to the financial health of the utilities fund with consideration to the mountain of capital projects planned," Gillis wrote in an email to environmental services director Susan Goebel-Canning and County Administrator Len Sossamon last week.
The Moody's analysis blames the downgrade on weakened reserve levels after paying for a large number of projects with cash and a decline in revenue anticipated because there have not been the number of new connections and investment returns that the county expected.
In mid 2009, the county's then-utilities director, Joe Stapf, pitched a graduated water and sewer rate increase to the County Commission to help finance $150 million worth of water and wastewater projects. Key among them was the consolidation of small wastewater treatment plants into regional plants.
The increase in rates would have been phased in gradually over five years. But the commission approved a smaller rate-increase package.
And the package had anticipated a rate of growth in the system that the stagnant economy never delivered, Gillis said.
Stapf had also hoped at the time that some of the already-engineered portions of the utility capital plan might be funded by federal stimulus money that was being poured into public infrastructure projects across the country, but the county was not successful in getting those monies. Instead, the county has been using low-interest loans through the state revolving fund to pay for the work.
Gillis said that given how much work is still on the capital projects list, the county will likely have to go to the bond market at some point, and that is when the higher interest rates could impact county coffers.
She said her warning to the county was made so the county's policy-makers, county commissioners, could think through the implications of a lower bond rating as they make future project decisions.
Commissioner Jim Adkins said the warning could be a sign that the commission needs to "rein in" some of the planned spending and "pick and choose" the projects the county needs most.
"It's not that we're in real bad shape," he said. "But it's a good wake-up call."
Said Commissioner Jeff Stabins: "We need to become more efficient. We need to reduce spending."
The Utilities Department needs to be sure that the rate structure is appropriate and that the projects on the list are necessary, Stabins said. And he said he hoped Sossamon would get involved in helping sort through the priorities.
Commissioner Dave Russell took issue with the rationale used by Moody's in decreasing the rating. He said it was an overreaction by the rating firm and that the downgrade itself was so minor that "it won't amount to a hill of beans" when it comes to its impact on county finances.
"Their biggest beef with us is that we used our reserve to leverage critical projects using the state revolving fund," Russell said.
He defended what the county has done, noting that the Utilities Department has been able to accomplish needed water and wastewater projects, borrowing at a low rate at a time when construction costs are at rock bottom.
That, he said, has gotten the county ahead of the curve on its infrastructure.
"We've been able to get it done sooner rather than later and at the lowest possible cost to our taxpayers," Russell said.
Barbara Behrendt can be reached at [email protected] or (352) 848-1434.