Pocatello, Idaho's progress toward a settlement agreement in a five-year legal battle over utility user fees was deemed a credit positive by Moody's Investors Service.
The city of 50,000 in eastern Idaho holds an Aa3 rating from Moody's.
Sixth District Judge Stephen Dunn on July 8 granted preliminary approval to a $4.5 million settlement of the class-action lawsuit against the city. A hearing for final approval is scheduled for Sept. 16.
Pocatello Mayor Brian Blad announced that the city would use its reserves to cover the settlement cost.
“While the settlement amount represents 42% of Pocatello’s fiscal 2018 general fund reserves, the amount is substantially less than the plaintiffs estimated,” Moody’s analyst Sam Feldman-Crough wrote in the report released last week.
The plaintiffs’ attorney estimated earlier in the year that the city could owe customers affected by the fees north of $20 million in damages and interest, according to the Idaho State Journal.
“The end to the uncertainty over the size of Pocatello’s legal liability will improve the city’s credit profile, as the costs are now known and manageable,” Feldman-Crough wrote.
The case filed in 2014 challenged the city’s use of the payments-in-lieu-of-taxes fee to the support the city’s general fund.
The Idaho Supreme Court ruled in favor of the plaintiffs finding that the fee was not a reasonable user fee, and in 2018, the district judge in the case granted class action status to utility customers.
The city’s general credit profile remains strong, as in addition to adequate reserves, the city is supported “by good governance, modest combined debt and pension liabilities, and a healthy local economy,” Feldman Crough wrote.
The largest employers in the city are Idaho State University, On Semiconductor, medical facilities and agriculture.
The city adopted a policy in 2016 of holding reserves of at least 25% of budgeted expenditures, according to Moody’s.
Governmental debt is minimal at just $3.9 million as of fiscal 2018, Moody’s wrote. The three-year average of Moody’s adjusted net pension liability is $95.5 million.
