LOS ANGELES -- Trying to regain their footing after rating agency downgrades this spring, supervisors for Maricopa County, Ariz., on Wednesday approved a $1.26 billion budget for fiscal 1995.
Market participants characterized the spending plan as the county's first step in a multiple-year process to climb out of a financial hole that deepened this past spring, prompting a downgrade of the county's general obligation debt to single-A from double-A.
The county started the fiscal year last Friday with a roughly $65 million deficit, and the budget does not contain a method to erase it, according to Bill Davis, a vice president with First Interstate Bank of Arizona. The Phoenix-based bank is the county's financial adviser.
Davis said the deficit problem will be addressed in greater detail when a three-year business plan is unveiled later this month or in early August.
"The budget plan is a step in the right direction, but they haven't gotten there yet," Davis said of county officials' efforts to restore fiscal stability. Guidelines in the business plan "will attempt to reduce the deficit as much as possible," Davis said. "The goal is to eliminate it within the next three years."
On May 26, Standard & Poor's Corp. downgraded Maricopa County to A from AA, placing it on CreditWatch with negative implications. On June 13, Moody's Investors Service lowered the county's GO bond rating to A from Aa.
Standard & Poor's "will take a final look at the budget to make sure they have a workout plan in place," said David Hitchcock, a director for the agency. "If the rating committee feels the workout plan is solid, presumably [Maricopa County] would come off CreditWatch."
The budget is "a hopeful sign," said Chris Mushell, a Moody's assistant vice president. "They are on the right track. We get the feeling that the [county] administration is much more in tune with their problem."
The budget addresses concerns raised by the rating agencies about supervisors' ability to provide fiscal leadership, Deborah Larson, the county's chief financial officer, said yesterday.
"Clearly, this is a milestone in the county's turnaround effort," Larson said of the budget, which calls for a 15% decrease from fiscal 1994 spending.
Maricopa County has "horrendous, hard decisions to face now in terms of allocations of scarce resources," Larson said. "There is not enough money to go around" for non-mandated programs.
Supervisors indicated they would generate additional revenues by implementing a slight property tax increase. They delayed approving the exact amount until August, when the county's assessed valuation rate is set.
However, the new tax rate will be "a very minor increase over" the $1.24 per $100 assessed value levied in fiscal 1994, Davis said. The county will increase the primary tax levy by about 24 cents per $100 assessed value, and decrease the secondary tax levy by about 19 cents, to less than one cent, Davis said. The primary tax rate funds operations, while the secondary levy is used for debt service. The decision to decrease the secondary levy allowed the county last month to refund two series of maturing GO bonds totaling about $26 million that were scheduled to mature in fiscal 1994 and 1995. The refunding allowed the county to spread debt service requirements over the next five to six years.
Wednesday's budget approval clears the way for the county to begin planning two separate short- and long-term borrowings in August.
As part of its annual cash management program,Maricopa County plans to issue tax anticipation notes tentatively sized at between $125 million and $150 million, Davis said. The Tans will mature in July 1995.
About $30 million of certificates of participation will also be issued next month. The COPs will consist of about $4.5 million to refund outstanding lease obligations, $4.5 million to acquire new equipment, and $20.5 million "to be used for reserves to help offset the county's deficit," Davis said. The COPs will mature in 12 to 15 years.
In a related development, Bank One last Friday renewed the county's $65 million line of credit for another year. The line of credit had been scheduled to expire July 29.
"The reason we put them on Creditwatch is because they had an immediate cash crisis," Hitchcock of Standard & Poor's said. The proposed Tan issue, COP deficit financing, and line of credit extension "will end the immediate cash crisis," he said.