Credit Downgrade Puts City, Mayor Curry in Awkward Position

This week, bond credit rating organization Moody’s Investors Service announced that it was downgrading around $2 million worth of Jacksonville city bonds and downgrading its issuer rating, as well as lowering the city’s outlook from “stable” to “negative.”

It did so largely as a result of the city’s utility company, JEA, engaging in a lawsuit over the troubled Plant Vogtle project in Augusta, GA, in which the city is also a plaintiff.

In the suit, JEA seeks to have its financial obligations to the project – a total which has grown to well over $1 billion – nullified. It argues that its own board overreached in its authority when it first agreed in 2008 to help fund the nuclear power plant expansion project.

Moody’s indicated that the city’s involvement in the suit “calls into question its willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s creditworthiness on all of its debt and is not consistent with the prior Aa rating category.”

The report does note that despite the lawsuit, JEA has continued to routinely make its payments to Municipal Energy Authority of Georgia for the project as per the agreement.

The credit rating downgrades, though relatively minor, put the city in an awkward position. Lowered credit ratings may require the city to pay higher rates on any debt it takes on, like when it borrows to fund a large project like Shad Khan’s Shipyards plan. And if they do pay higher rates, that could likely lead to taxpayers kicking in more to compensate.

One of the downgraded ratings applied to the city’s capital improvement bonds. The Curry administration has been aggressive in planning capital improvement projects, like the proposed $25 million reconfiguration of the Hart Bridge ramps or the several million set to be spent on upgrades around McCoy’s Creek. Those projects – or other, smaller ones deemed less important – could in theory be negatively impacted by the credit downgrade.

And more specifically, it’s not a great look for Mayor Lenny Curry, as just last month a press release from his office spoke in glowing terms of a different credit report.

When Fitch, another of the “big three” credit rating organizations, announced that the city had been upgraded from “AA” to “AAA” rating status, the city sent out a press release hyping up the announcement as historic and emphasizing that the city had never reached a “AAA” rating previously.

Curry himself is quoted referring to it as a “tremendous win for the City of Jacksonville,” and said he’s “proud of the history we are making.”

Incidentally, the same press release noted that Moody’s had previously affirmed the city’s “Aa2” rating.

If Fitch’s report represented a tremendous win just a month ago, Curry and his administration presumably considers the Moody’s report to reflect some sort of failure.

The report from Moody’s indicated that the city could improve its rating by dropping the lawsuit and paying the remainder of its obligations, as well as reducing its growing pension obligations.

The city, for its part, released a statement saying it “strongly rejects” Moody’s findings.