Jackson water rates could rise after bond rating downgrade

For the second time in two years, credit rating company Moody's Investors Service downgraded the city of Jackson's water and sewer system revenue bonds due to multiple perceived challenges. The downgrade could mean that water rates in the city will be increased to combat higher interest rates.

Moody's, a company that provides financial research on bonds issued by government entities, downgraded the rating on Jackson's Water and Sewer System Revenue Bonds from A1 to A2 on Nov. 25, which will affect around $239 million in rated debt.

"We (city council members) just got this report (Tuesday)," said Ward 7 Councilwoman Margaret Barrett-Simon. "I haven't had the chance to go through it very specifically, but this is not good news."

Even before the downgrade, city officials said the city would likely have to increase water rates because of a $12 million deficit in the water and sewer revenue compared to debt. Additionally, the city's water department is losing about 40 percent of its water within the existing infrastructure. Both the deficit and the water loss played into the downgrade.

Other contributing factors to the downgrade include "weak management practices evident in poor revenue projections, significant water loss and less than sum sufficient debt service coverage in fiscal 2013," the Moody's report states.

"While this ratings downgrade is disappointing to us, we fully understand the factors considered by the rating agency in their decision and these were issues that concerned us as an administration," Jackson Public Works Director Kishia Powell said in a press release.

The Moody's report cited multiple other problems which contributed to the downgrade, including "inadequate debt service coverage, economic stability due to institutional presence, declining unrestricted cash, limited rate raising history and an undeveloped financial plan."

Moody's classifies the A2 rating as an "upper-medium grade and low credit risk."

In May 2013, Moody's downgraded the water and sewer revenue bonds from Aa3 to A1. The most recent downgrade is something the city tried to avoid.

"Over the past several months, the city has taken aggressive steps in anticipation of the Moody's review," Mayor Tony Yarber said in a press release. "Those actions included increasing water rates and sales tax, overhauling the personnel management of the Department of Public Works and the forensic auditing of the system and contracts."

The city of Jackson approved a $200,000 contract with Washington-based Raftelis Financial Consultants for a water-sewer rate study and financial plan – something city officials said Tuesday will help while assessing the downgrade.

"We will have to discuss what this means in the coming days and see what we can do to improve the situation," Barrett-Simon said.

Contact Adam Ganucheau at (769) 257-2995 or aganucheau@jackson.gannett.com. Follow @GanucheauAdam on Twitter.