DALLAS - Hurricane-damaged Galveston has suffered a four-notch downgrade from Standard & Poor's, reversing the upgrade it received before the storm landed.
The ratings agency dropped the Texas city's general obligation credit from A-plus to BBB and left it on the negative watch list it was placed on Jan. 12. The agency also lowered the city's waterworks and sewer bond debt from A-minus to BBB.
"The downgrade is based on our belief that the damage caused by Hurricane Ike will have a significant long-term impact on the city's economy and local revenue bases, and that full recovery will take years," analysts wrote. They added that the BBB "reflects our view that despite the significant loss to the local economy, employment base, and local tax revenue bases, the city of Galveston exhibits adequate capacity to meet its GO debt service requirements."
The move erases the two-notch upgrade from A-minus to A-plus in July, about two months before the hurricane hit Sept. 13.
The city's A2 Moody's Investors Service rating is on negative outlook. Galveston County and Galveston Independent School District are also on negative outlook from Moody's and Fitch Ratings.
Galveston has been reeling from Ike, which flooded more than 70% of the island's homes and businesses. The hurricane also heavily damaged the mainland, eroding shorelines and erasing taxable properties.
Though the island's population has varied with previous disasters, the population had been stable at roughly 58,200. However, the population is estimated to have fallen by a third since Ike.
"We've never seen anything of this magnitude in our lifetimes," city finance director Jeff Miller said earlier this month. "We're talking about a 100-year event. In terms of property damage, it's probably more costly than the 1900 hurricane."
The 1900 hurricane was one of the deadliest events in modern U.S. history, killing an estimated 6,000 people and leveling the city. Before that storm, Galveston had boasted that it was not in the path of major hurricanes. Afterwards, its citizens voted to build the 17-foot seawall that will require $10 million in repairs from damage caused by Ike. That project is in the hands of the U.S. Army Corps of Engineers.
Galveston's property tax stood at $3.97 billion in fiscal 2009. Preliminary assessed valuation figures for fiscal 2010 will not be released until April 2009, but city officials speculate that property tax base loss could be between 35% and 50% lower due to the storm's damaging effects on properties and beach land.
The city's employment has also suffered with the migration of citizens and businesses off the island. The University of Texas Medical Branch, the city's main employer, has laid off approximately 3,000 of its 12,408 employees and could lay off 800 more in the near future.
In a hearing before the Texas House Select Committee on Hurricane Ike earlier this month, Galveston Mayor Lyda Ann Thomas and city manager Steve LeBlanc urged lawmakers to provide financial aid by rebating the state's share of the sales tax collected in the city. The Texas Legislature is currently in session and is expected to consider the city's plight.
