Moody's Investors Service said it has downgraded to A3 from A2 the GOULT rating of Glendale, Ariz. ($163.1 million outstanding).
At this time, Moody's also downgraded to A3 from A2 the rating on the city's senior lien excise tax bonds ($253.5 million) and also downgraded to Baa1 from A3 the rating on the city's subordinate lien excise tax bonds ($212.5 million).
The transportation excise tax bonds have been downgraded to A3 from A2 ($91.1 million). The street and highway user revenue bonds (HURF) have also been downgraded to A3 from A2 ($8.1 million).
The rating outlook on the city remains negative. Lastly, Moody's affirmed the A1 rating on the city's water and sewer enterprise revenue bonds ($263.3 million) and revised the enterprise's outlook to negative from stable.
The downgrade of the GOULT rating primarily reflects unusually weak management practices denoted by ongoing internal and state controlled investigations of certain financial actions dating back to 2009.
Additionally, the rating reflects the city's outsized enterprise risk exposure to the NHL's Coyotes franchise under a recently adopted arena agreement which requires that the city to pay an annual management fee to the team's new owners.
The city's general fund remains weak with still negative reserves following deep excise tax revenue declines in the recent recession and the lingering impact of prior payments to the National Hockey League (NHL) that covered large operating losses of the Coyotes in FY2011-12.
The city also has an outsized direct debt burden that includes significant leveraging of excise taxes otherwise available to support core services. The rating also reflects moderating declines for the tax base with a return to growth projected as soon as FY2015 following a severe contraction during the recent housing downturn.
The negative outlook on the city reflects currently unknown impact from the ongoing internal and external investigations mentioned above.
Additionally, the outlook reflects the expectation that Glendale will remain challenged to balance its budget over the medium term due to a high level of fixed costs. The city's recent sales tax rate increase will continue to provide additional revenues over the medium term, supported by a general improvement in consumer activity as the economy continues to recover.
Nevertheless, management will need to enact additional budget balancing measures that may be politically challenging to attain fiscal balance. Further, the new Jobing.com Arena management agreement was adopted on 5 August 2013 upon successful sale of the team by the NHL; the city will pay the team's owners a $15 million annual fee for up to 15 years while receiving some new revenue sharing from the facility in addition to excise tax revenues that are expected from the arena and surrounding retail establishments.
