WASHINGTON -- Standard & Poor's Corp. downgraded to A-minus from A-plus the Delaware city of Wilmington's guaranteed lease revenue bonds, and Moody's Investors Service sounded a wanting about the credit last week.
But both agencies voiced confidence that the city will continue to take steps to stabilize its finances after experiencing a series of operating deficits from fiscal 1991 through fiscal 1994. The fiscal year begins July 1.
"We have taken steps to identify the problems of the past few years and to address those problems," and the rating agencies have recognized these efforts, said George Fournarif, director of the city's finance department.
Delaware's largest city has about $220 million of outstanding general obligation debt, which is insured and unaffected by the Standard & Poor's downgrade, said Fournarif.
The Standard & Poor's action affects about $1 million of lease revenue bonds, the amount remaining from a 1987 issue by the city on behalf of the Vorelco Port Facility Project.
Standard & Poor's had placed the bonds on CreditWatch with negative implications on Oct. 19 because of the operating deficits. Last week's downgrade "is due to the city's significantly weakened financial position," the agency said last Monday.
The rating agency affirmed its AAA rating of Wilmington's GO bonds.
Moody's confirmed its A rating for GO, lease revenue, and guaranteed parking revenue series 1978 bonds, which were issued by the city parking authority. But Moody's warned that a downgrade could occur if the city does not meet budgeted targets.
In a credit report last Wednesday, Moody's said a major factor in maintaining the A, rating is the city's response to the earlier deficits. Wilmington began a hiring freeze, cut spending, and raised property taxes and water and sewer fees, the agency Said.
"The administration's ability to achieve targets will be a key factor in future credit evaluations," Moody's said.
The previous series of operating deficits, which averaged more than $3 million from fiscal 1991 through fiscal 1994, were caused mostly by short-falls in revenues that are sensitive to economic conditions, the rating agencies said.
High-wage job losses occurred during the recent recession, while new jobs that were created in services and trades were mostly low-wage positions, Standard & Poor's said. The job market is a major factor in the city's revenue stream because Wilmington's primary revenue source is wage taxes.
The second largest revenue source for the city is property taxes, which will remain flat or decline in the near term because of incentives put in place to attract employers and jobs, Standard & Poor's said.
The city's 1994 general fund balance decreased by 78% in fiscal 1994, according to unaudited 1994 data, Moody's said. Standard & Poor's said the fund balance reserve was $815,000, or 1.3% of expenditures at the end of fiscal 1994.
The lack of reserves means the city cannot make up further deficiencies, Moody's said. "The administration's ability to achieve budgeted targets and reserves for the current fiscal year is crucial," the agency said.
Both rating agencies commented on Wilmington's high debt burden, which Moody's said is "somewhat moderated by support from enterprise systems. The ongoing support of a sizable amount of city debt issued for utility operations is expected to help maintain manageable debt levels."
Debt service made up 9.2% of fiscal 1994 spending and is budgeted for 11% in fiscal 1995, Standard & Poor's said.
The city did not issue debt in fiscal 1994 and has no plans to do so in fiscal 1995.
