Platte County’s financial ratings have taken a nosedive in recent days, on the heels of comments made by county commissioners at a meeting in August.
During an Aug. 20 public meeting of the commission, the commissioners said that the board did not intend to make a Dec. 1 payment on Zona Rosa bonds unless there was “a long range sustainable plan” for the Zona Rosa property.
As of late in the day on Monday, commissioners were saying such a long term sustainable solution has not been presented to them by those involved with the Zona Rosa property.
“Fortunately though, the payment is not due until Dec. 1. Lord willing, a long term sustainable solution will be worked out by then,” said John Elliott, second district commissioner.
Trademark Property Co. has taken over management of Zona Rosa (see related story in this issue).
Financial analysts say the commission’s comments in August triggered a huge 10-notch downgrade in the Zona Rosa bonds and placed it on credit watch with negative implications.
A previous county commission in 2007 had pledged county backing of $32 million in bonds, about $29 million of which remains outstanding.
The Zona Rosa infrastructure bonds, used to construct parking garages, were downgraded from A to B-, which analysts described as “deep into junk bond status.”
Earlier this year, Standard and Poors had downgraded the bonds two notches from AA- to A, county officials said.
After the most recent Standard and Poors downgrade, Moody’s Investors Service downgraded Platte County’s general obligation limited tax rating from Aa2 to Ba1 and the county’s lease appropriation rating from A1 to B1.
“We view this as a willingness issue rather than the ability to pay,” S&P wrote, acknowledging the county has a healthy balance sheet and taxing flexibility. If the commission cancels its budget appropriation to make the bond payment, Municipal Market Analytics warned of a widespread credit impact for the county and a potential investor chill across the state for appropriation credits.
“S&P reports that the county is in strong financial and economic condition but MMA assumes catastrophic downgrades for all Platte County securities should the IDA bonds default,” MMA wrote in weekly commentary last week.
In addition to the deep cut, S&P put the rating on CreditWatch pending confirmation of what action the commission intends to take on the December payment. Without the payment, the bonds would default. Analysts say if the rating agency confirms a non-appropriation it would lower the rating to CC which would warn of looming default.
All the negative rating activity drew a harsh response from the county commission at its meeting on Monday.
“Evidently Moody’s does not understand the county’s position or they are intentionally misrepresenting it. The bond documents are clear that the county’s participation is subject to annual appropriation only, nothing beyond that. And in January we appropriated for a possible shortfall and we have not taken any official action since then,” said Ron Schieber, presiding commissioner.
“Moody’s repeatedly states in their report that the county has a lack of willingness to pay, which again is a clear misrepresentation of our position. Until a long term sustainable solution is found we see no reason to use good Platte County tax dollars to subsidize an East Coast developer,” Schieber continued.
He went on to say the county feels as if the downgrade of the Zona bond alone is about 11 years too late.
“This bond issuance would likely not have occurred had this been the initial rating, as it should have been. Nothing has changed on this issue since the original rating, from the county’s perspective,” Schieber remarked.
S&P gave the county’s management a “very weak” rating in its report.
“That appears to be based on only discussing possible solutions and not based on any official action by the commission or any change of the current appropriation,” Schieber said.
Dagmar Wood, first district commissioner, in open session on Monday said she believes Moody’s is “trying to make an example out of us” and speculated the Moody’s action was “retributive.” Bond rating agencies such as Moody’s and S&P Global Ratings are typically compensated by either an issuer of a security or a third party participant.
Wood said the county commission is seeking legal counsel in the matter.
The commission’s calendar for Monday listed a closed meeting set with attorney Todd Graves of the Graves Garret Law Firm. Graves Garrett is a nationwide firm. Todd Graves is former prosecutor for Platte County and former U.S. Attorney for the Western District of Missouri.
Moody’s also downgraded bonds associated with the county’s two community centers, as well as bonds associated with Neighborhood Improvement Districts within the county that are not dependent upon th county’s financial participation.
“This is illogical considering I personally told the Moody’s analyst that the community centers have a dedicated funding source-the parks and stormwater tax–and that the commission has always made and intends to continue to appropriate for these important payments,” Schieber said.
“Moody’s real intent appears to be to slap us and send a message to all governmental entities that have debt subject to annual appropriation on the books,” the presiding commissioner added.
County officials also expressed frustration that legal ambiguity in the bond documents concerning obligations by any new owner for Zona Rosa. Moody’s told the county it cannot discern whether a new owner would be required to post a new letter of credit or make up any shortfall in TDD revenues. The TDD has a one percent special sales tax in the Zona district that goes toward the bond payments.
The special sales tax has traditionally come up short. Previously, the owners would cover the shortage. But last year a letter of credit on file with the bond trustee covered the payment and the owners never replaced the letter of credit, putting the county in the potential situation of covering the shortfall, which county officials have said could be at least $700,000 and possibly more in December.
Elliott, holding up a July 18, 2007 copy of The Landmark that he said he had saved, remarked that when he saw that the county commission on a 2-1 vote at that time had approved backing the bonds he “knew this was eventually going to be an issue.”
“Funding private development with taxpayer dollars is not a basic county function. That is as true now as it was 11 years ago,” Elliott said. “The bondholders and taxpayers were sold a bill of goods, now it has fallen on us to clean up another financial mess. It’s our goal to ensure that other governmental entities are made aware of these financial shenanigans and Moody’s attempt to strong arm them into submission.”
Elliott said he would be in favor of using the $700,000 the county commission has set aside for the Dec. 1 bond payment to instead use that money on legal fees to take action “against entities and individuals who got us into this.” He said those entities and individuals might include bond attorneys, brokers, Moody’s, S&P, etc. He said the previous county commissioners are protected from such legal action through sovereign immunity.