“The cost of doing business with Jacksonville just went up. Everybody loses.”
These words, from Jacksonville City Councilwoman (and likely mayoral candidate) Anna Brosche, address a recent fiscal setback for the city.
Late last week, Moody’s Investor Services downgraded $2.1 billion of Jacksonville debt. The reason? Local utility JEA, and what recent moves have revealed about the relationship of the city and the utility to contractual agreements.
“The downgrade of the city’s debt reflects our concurrent downgrade of JEA’s electric, water and sewer and District Energy System utility debt ratings,” Moody’s contends.
Moody’s specifically laments Jacksonville’s “participation as a plaintiff in litigation with JEA, a component unit of the city, against Municipal Energy Authority of Georgia (MEAG), in which JEA and the city are seeking to have a Florida state court invalidate a ‘take-or-pay’ power contract between JEA and MEAG.”
That contract was struck 10 years ago, during a time of irrational exuberance in which the JEA Board apparently thought nuclear power was the future. The utility invested in the Plant Vogtle nuclear plant in Georgia, agreeing to bankroll 41 percent of MEAG’s share for 20 years.
A lot has happened since then. Appliances have become more efficient. Revenue streams are flattening. Big corporate customers are able to get off the grid. And the plant has had construction delays and cost overruns.
Not a good look!
Moody’s doesn’t want to hear the spin from LOCAL LEADERS, quelle surprise. They’re looking at fundamentals.
And the fundamentals have them rethinking Jacksonville’s “willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s credit-worthiness on all of its debt and is not consistent with the prior Aa rating category.”
Worth noting: JEA actually attempted to poor-mouth its way out of the deal last month, a move that made Standard and Poor’s put it on a “negative credit watch” for shoddy “internal controls” and questions about “the utility’s willingness to meet its contractual financial obligations.”
In a letter to the board chair of MEAG, JEA Board Chair Alan Howard painted a bleak picture.
“But we in Jacksonville have 50,000 families that live at or below the poverty line to protect, making affordability an essential priority for us and our community,” Howard maundered.
Apparently, people in Georgia aren’t aware of our city’s approach to “protecting” families “at or below the poverty line.” Protections include tens of millions of dollars for projects ranging from a key donor’s Southbank development (The District, f/k/a “Healthy Town”), to $88M of city money for stadium improvements, to a multi-year full-court press to get money to tear down the Hart Bridge off-ramps ... a priority project for Jaguars’ owner Shad Khan.
What would those folks hanging out around the poverty line do without any of that? It’s not as if there are any pressing health needs in half the city. And it’s not like the city’s safety-net hospital (UF Health) has been gasping for air for a decade.
None of the Georgia operators wanted to end the deal, so pending a federal lawsuit’s resolution, JEA is stuck.
And the city is stuck with the credit downgrade, which affects issues including Better Jacksonville sales tax revenue, capital projects, excise taxes revenue, capital improvement and transportation bonds.
Jacksonville Chief Financial Officer Mike Weinstein, a master of timing, is running out the clock on accumulated leave before his official retirement date. That left Chief Administrative Officer Sam Mousa, who hates to be quoted, to argue the city’s case against the downgrade.
Spoiler alert: The rhetorical technique that works on certain addled councilors does not work on ratings agencies.
Mousa worked it anyway.
“JEA customers are currently paying for this skyrocketing, out-of-control nuclear power plant project with no certainty in cost or completion timeline. This downgrade action is based upon wild speculation, completely without rationale or merit, and not at all indicative of the City’s commitment to pay its debt (both past and present), or of its financial strength and integrity,” Mousa said.
Analysts have bemoaned aspects of the city’s finances. Bloomberg contends that the city’s “high fixed costs” (31.6 percent) are the biggest burden in the nation for a city with more than 250,000 people. (The city disagrees with this read).
Likewise, the city’s pension reform of 2016 created short-term liquidity, allowing for capital projects in recent budgets. However, the unfunded liability from the city’s defined benefit plan is surging toward $4 billion, and higher interest rates and a credit downgrade won’t help.
Will someone jump in the mayoral race and make fiscal management an issue? Curry is a CPA, and he ran in part on getting the books right.
Coincidentally, the aforementioned Anna Brosche is also a CPA.
Get your popcorn ready.