THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, August 4, 1995 TAG: 9508040455
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY TONI WHITT, STAFF WRITER
DATELINE: PORTSMOUTH LENGTH: Medium: 89 lines
The city's bond rating - a factor in determining how much it must pay for the money it borrows - dropped in May, a fact that was apparently kept secret from the City Council while it deliberated economic and development issues.
Moody's, one of three national agencies that evaluate the financial health of America's municipalities, on May 8 dropped Portsmouth from an A1 to an A, which is considered an average rating.
City officials told council members about the drop this week, after the council confronted them with a ``rumor on the street,'' said Mayor Gloria O. Webb.
Mayor Webb said she was told this week by Johnna Whitaker, the city's chief financial officer, that former City Manager V. Wayne Orton instructed his staff to keep it quiet when the report came in from Moody's.
Orton, who retired in June, could not be reached for comment.
The rating decline should have only minor impact on the city, according to Moody's and city economic development experts. It could result in increased interest rates when the city tries to borrow money for big projects, however.
About 57 percent of Virginia's cities are rated either A or A1, said Edward Krauss, vice president of Moody's public finance department.
Portsmouth's rating dropped for several reasons, Krauss said. The most significant was that Portsmouth ``hasn't seen any growth in the tax base in the last five years.''
The Moody's report also cited the city's steadily declining sales tax revenues, higher-than-average unemployment and shrinking population. While the report said Portsmouth's financial position is currently ``adequate,'' it pointed to what it described as small financial reserves and a higher-than-average tax rate for the Hampton Roads region as ``limiting financial flexibility'' in Portsmouth.
The city has kept financial reserves at about 4 percent of the operating revenues, but the recommended amount is 10 percent, the city's municipal finance commission has often warned.
The report also said that Portsmouth has managed its debts well through ``its aggressive payout'' and a utility system that is self-supporting.
The city reported to Moody's that it expects to issue $55 to $60 million in bonds over the next five years. The largest proposed project would be building a new I.C. Norcom High School.
Ronald W. Massie, the city's acting city manager, declined to discuss why his predecessor hadn't provided the Moody's rating information to the council in May.
Massie, who had experience in city finance while working for Norfolk, said the rating drop could translate into slightly higher interest on long-term borrowing.
``It's not disastrous,'' Massie said. ``Generally the difference between an A1 and an A is less than 1 percent - a fraction of 1 percent. The more volatile issue is where the market stands when you go out for the bonds. In the long run, it means you do pay more for projects.''
Massie said it also means that the city has to continue to concentrate on improving its tax base, retail sales and business.
``Operating revenues and expenditures are in a good place,'' Massie said. ``The city needs to build back its tax base and its financial capacity.''
Matthew James, the city's economic development director, predicted the drop in the bond rating will not have a significant impact on Portsmouth's ability to attract business.
His department will be a key in improving the rating, he said.
``We need to aggressively redevelop some of our retail facilities that aren't doing as well,'' James said. ``There's not one solution. It will take time and effort by a lot of folks. I truly believe we're headed in the right direction now.''
Webb said that even though the drop in the rating may not have a big impact on the city, the council should have been told about it back in May.
``I don't know what the reason was,'' Webb said of the secrecy. ``We should have known the whys and wherefores.''
Webb said if the council had realized the importance that rating agencies placed on retail sales, it might have had an easier time deciding to allow developers to build a new shopping center in Churchland. The council voted 4-3 last month to authorize a shopping center on the old Churchland High School site, despite neighborhood opposition.
City staff is expected to explain the Moody's rating and its potential effects during a council work session next week.
The city's bond rating from Moody's was an A in 1970. It improved to A1 in 1975. ILLUSTRATION: [Color Photo]
Former City Manager C. Wayne Orton
by CNB