THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, February 8, 1996 TAG: 9602080390
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY KAREN WEINTRAUB, STAFF WRITER
LENGTH: Medium: 63 lines
Virginia Beach is still a good bet for investors, one of the nation's premier financial rating agencies said Wednesday.
But the latest Standard & Poor's assessment of the city included qualifying statements that may make potential investors think twice before buying city bonds.
The statement sounds mostly positive, and reaffirms the city's AA bond rating:
``The rating reflects the city's strong financial performance, despite the school board's operating deficit. . . ,'' the statement reads.
``The outlook remains stable because of the city's strong financial performance and stable economic base,'' it concluded. ``Standard & Poor's expects that the school board, working with the city, will develop a credible plan to provide structural fiscal balance and to implement more realistic budgetary and expenditure controls.''
In the world of high finance, however, such qualifying comments can be cause for concern.
``That's pretty strong language for a rating agency,'' City Finance Director Patricia A. Phillips said Wednesday. ``The bottom line impact is that investors will have less confidence in the city of Virginia Beach, which will translate to higher borrowing costs.''
The city plans to borrow about $60 million in the next month or two to fund school construction and other capital projects, Phillips said.
Phillips said the rating agency told her that cities rated with an AA - the agency's second highest grade - don't ordinarily run up $12.1 million deficits, as the school district did last year.
``They basically told me that AA credits should not behave this way,'' she said.
Council member Louisa M. Strayhorn said the rating agency's comments made her nervous about the city's future borrowing power.
``When they start pin-pointing things that are going on in your world, that's a slap,'' she said. ``People should not underestimate that, because that can change the interest rates we get.
``I don't like that at all. That really makes me nervous,'' she continued. ``We're really under the gun.''
The City Council had hoped to have a plan for consolidating several city and school departments by now, to reassure rating agencies that city bonds are a good financial risk.
Board members have said they agree with the concept of consolidation, but they have rejected the council's efforts to force a merger of the finance, accounting, payroll and purchasing departments.
Council member W.W. Harrison Jr. said Standard & Poor's comments reinforce the need for the board and the city to implement new policies, such as consolidation.
``The rating agencies and the public won't regain their confidence in our system until new procedures are put in place and actions are forthcoming,'' Harrison said. ``There's now a lack of trust in the existing systems, and we need to rebuild that trust by implementing new systems and hiring new people.''
KEYWORDS: VIRGINIA BEACH SCHOOL BOARD BUDGET by CNB