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County Says Finances Strong, Despite Negative Outlook

by ARLnow.com — December 8, 2011 at 12:18 pm 1,608 20 Comments

Arlington County says its finances are strong, despite a decision by Moody’s Investors Service to continue assigning a “negative” outlook to the county’s debt.

Arlington maintained its prime Aaa investment rating from Moody’s, but the firm argued that the county’s close connection with the federal government makes the future of its finances a bit uncertain.

“Today’s actions are based on an expanded evaluation of the exposure each municipality has to the U.S. government, including economic sensitivity to federal spending reductions, dependence on federal transfers and exposure to capital markets disruptions,” Moody’s Managing Director Naomi Richman said in a press release. “Issuers with outlooks that remain negative are viewed as having greater exposure to potential cuts in federal employment and federal spending.”

Arlington isn’t the only Northern Virginia locale to receive a negative outlook. Alexandria, as well as Fairfax, Prince William and Loudoun counties, have all been given negative outlooks due to the area’s “linkage with the U.S. government.”

“Arlington remains in a strong financial and economic position,” County Board Vice Chair Mary Hynes said in a statement, in response to the Moody’s decision. “During the bottom of the economic downturn, the County demonstrated its resilience and diversity. Our key economic indicators outperformed most in the region and the nation. Most recently, despite the threat of federal government budget reductions, private sector investment in the County has increased and housing values have remained stable.”

Hynes noted that the county maintains a sizable reserve fund as part of its budget.

“Even in the most difficult times, Arlington has remained committed to funding our reserves, including action this month to increase the County’s operating reserve to 5 percent of our budget,” she said.

The county is expected to brush up against one of its self-imposed debt limits in financial year 2013. Still, officials say they’re following the bond market closely.

“The County is not currently in the market with any bond issues and has no plans to go to market until mid-2012,” Arlington said in a press release. “The County last sold bonds in June 2011, with very favorable interest rates and market reception.  Any downgrade of the County’s credit rating could result in higher interest rates on future bond issues. The County and its financial advisors are monitoring the situation and market reaction closely.”

  • Thes

    This is a good reason to try to diversify Arlington’s economy over the next generation. Defense contractors may not always be able to sustain us.

  • JimPB

    What is the dollar amount of the “sizable” ARLCO government reserve?

  • Burger

    It was 4% last year and moving to 5% next. Hmmm….I wonder why?

    • Wayne Kubicki

      Burger,

      The three bond rating agencies have been urging Arlington to increase the reserve to 5% for sometime now (it had been 3%). From what I’ve been told, 5% is typical for a municipality.

  • Patrick

    “The county is expected to brush up against one of its self imposed debt limits in financial year 2013.”

    So in spite of the negative outlook on the county’s debt reiterated by Moody’s today, the county board continues to take the county into even greater debt. Bravo!!

    Not that the voters will show any restraint as they continually pass every bond issue placed on the ballot.

  • NoVapologist

    Translation: “We always have plenty of options for raising fees and taxes.”

  • dogwood

    Wonder if Moody’s would have downgraded the County’s rating if they had considered the County’s great financial management acumen with projects like the ArtisFail and the $100 million cost “adjustment” to the Columbia Pike street car project?

    • AllenB

      Why would they consider an increase in costs for a project that has not been even approved yet?

      As for the Artisphere, I bet you they do know about that.

      • Suburban Not Urban

        Because good cost estimating is about good process, scope containment and clarity of vision. It is typical that organizational bias and deficiencies lead to chronic poor estimating – which means a few concrete instances generally mean many more that haven’t been discovered or publicized.

  • JimPB

    Reserve: 5% of what? What’s the approximate dollar amount?

    What’s the total ARLCo debt?

    What’s the annual interest payments?

    What’s the schedule for retiring bonds?

  • JimPB

    This is a great time to borrow. Interest rates can be very low. For example, for Federal t-bonds, the net interest rate is a minus, i.e., bond buyers are paying the US Government to take their money. So, it would save the Feds (U.S. taxpayers) to borrow now rather than later when interest rates will be higher to pay for projects that need to be done. Very likely, the interest rates on ARLCo bonds now would be lower, possibly significantly lower, than usual and what they will be later.

    And since construction has been especially hard hit by the Wall Street inflicted economic dive, it can also save money (and give a welcome financial boost to construction companies and workers) to do construction projects now when the companies and workers are available and eager for work as their cost should be less now vs. later.

    The U.S. has a massive infrastructure deficit — roadways (includes bridges and tunnels); air traffic control and facilities; the electric grid (electric power distributions system; waterways; and natural gas and water and sewage pipeline systems. The U.S. Chamber of Commerce supports such a sweeping infrastructure initiative as an up-to-date infrastructure facilities American business competitiveness in the stiff international “the earth is flat” competition.

    Yes, there should be provisions for paying off the T-bonds for the infrastructure work. These revenue sources should be designated now and kick in when the economy recovers. Tolls or taxes on the users come to mind immediately as the designated source of revenues, but there are other possibilities.

    For ARLCo, there should be a thorough analysis of infrastructure needs.
    ALL that needs doing now should be done now because the cost would be less (lower interest rate on bonds, lower construction work cost). BUT it should be clear to all that this is a cost savings measure and that
    there must be constraint and less construction (less needed) in subsequent years.

    • Thes

      A very thoughtful post, JimPB.

    • Charlie

      Brilliant. Thank you. You should run for county board !!!,

    • Baja

      Our great bond rating is increasingly in jeopardy, so let’s not blow $260M or more on the Pike streetcar, whether or not the debt is cheap.

      • JimPB

        Trolleys seem like the “in” thing for public transit, but that’s not a reason to pursue it. All of the possibilities for better public transportation (meets need; frequent, available when needed and rapid transit/time economical service with convenient pick-ups and delivery stops) should be put on the table and their total costs (capital investment, operating cost subsidies; and repairs, improvements and replacements) compared.

    • NoVapologist

      Low interest rates and available credit was what lured so many subprime borrowers into the real estate market. That didn’t work out so well.
      Historically low rates are what encouraged the Greeks to issue loads of debt. That didn’t work out so well either.

      Yes, Arlington munis are pretty solid and could be issued at attractive yields, but just because credit is available doesn’t mean it should be issued and used for purposes unlikely to generate the returns necessary to repay that debt. Otherwise you just end up rolling into new debt that comes at a higher cost.

      • Suburban Not Urban

        +1 +1 +1
        Typical justification for more spending

      • JimPB

        RE: Several comments above.

        It was the rapid appreciation in the “price” of real estate coupled with the waving of documentation of adequate income — even no documentation of income — that drove the real estate boom. Great way to get a house far beyond what one’s income would enable and money to spend on other things, too from the mortgage refinancing(s). Great for those who made commissions and fees from the transactions. A very expensive mess to clean up, and for which we’re still paying dearly in un- and underemployment and in very low interest rates (bad for those who look to interest for an important of their income).

        A good part of what government (ARLCo specifically) buys will not directly pay for itself, e.g., school buildings. Other things lend themselves to designated revenues to pay off the bonds, e.g., bonds for water treatment facilities and lines can be paid off with fees for water and sewage water service.

        We should not borrow to buy (usually build) because interest rates are very low and will be higher (along with costs of materials and labor) UNLESS we need the purchase (building) and, if we don’t do it now when the cost will be less, we will do it later when the cost will be greater. The need must be clear and compelling.

        The number of Federal employees may decrease and their salaries may be stagnant for a time, but then the number of contract employees will increase, and many of them will receive good compensation. Arlington County’s base in government workers is secure.

        Climate change may bring major changes (beyond weather instabilities and records), but ArlCo will be habitable pretty much as it is for decades to come, during which time we need to provide adequately for those of us here now and for the immediate generations to come, during which time the bonds will be retired (paid off).

  • DCBuff

    What is totally overlooked, not mentioned directly, but needs to be understood is not simply that the Federal Gov’t will no longer be a cash cow to milk for Arlington, but that the 1000s of residents who work for the USG have their livelihoods in jeopardy as well. Multiyear pay freezes already under way and likely to be extended, followed by further cuts in take-home pay through higher healthcare and retirement costs mean less for these workers. And, these workers could be out of jobs if the cuts are severe enough. The County has no clue about this kind of middle class impact.

  • LPS4DL

    Arlington will probably go back to being a low population farming community by the end of the century. Half of the county will be underwater as will most of DC and the Federal Capital will move to another area of the country. Federal employees and contractors will move to the new Capital. All of the DC area communities should start to plan for this now and adjust their building projects accordingly.

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