County Credit Rating Risks
Did you know that governments have credit scores just like you and me? Yep, it’s true; and just like us a government’s credit score is critical to its overall financial health.
When my wife and I refinanced our home some years ago, the first thing our potential bank did was to pull our three credit scores to see if we were worthy of having money loaned to us. Once they found our scores, they looked in detail to determine exactly how much interest they were going to charge us based on our scores.
As we all know, banks charge different interest rates based on credit scores. The better credit scores receive lower interest rates, and vice versa. Governments are no different, except instead of calling them credit scores they’re called bond ratings.
Mecklenburg County and all seven municipalities in the county have bond ratings. Just like a personal credit score, a bond rating is set by potential lenders based on the perceived financial health of the government in question. A number of factors play into an actual bond rating, but the major factors are outstanding debt, cash reserves, operating costs and ad valorem revenue (property taxes).
Mecklenburg County currently has the best bond rating you can have with an AAA bond rating. That’s great for us, because when Mecklenburg County goes to borrow money (through the selling of bonds) the interest rate is very low. However, that is about to change dramatically if county commissioners move forward with the budget plans being suggested.
You see, Mecklenburg County has more than a $30-million deficit in this year’s budget. To add onto this, Mecklenburg County is projecting up to a $60-milion deficit in next year’s budget. So what is the Mecklenburg Board of County Commissioners’ plan to offset these deficits?
Cutting unnecessary and duplicate services? Nope, they can’t do that in an election year, because they would alienate their Democrat base that believes government should fund anything and everything without regard to unemployment rates and economic struggles.
Raising taxes? Nope, they can’t afford to do that because they know they’ll make the Republican and Independents mad during an election year.
The Mecklenburg Board of County Commissioners is actually planning on doing something worse than either of those options. They are going to use the $98 million that WE have in cash reserves to fund the deficit. That’s right, they’re planning on using approximately $90 million of OUR $98 million in cash reserves (they call it fund balance) to “balance” the budget over the next two years, after it took decades to build up these cash reserves. Now what’s wrong with this picture?
If you remember earlier, one of the major factors in a government’s bond rating is its cash reserves. If you reduce the amount of fund balance by 92-percent in just two years, it will have a dramatic impact on the county’s bond rating.
If you think we have a hard time coming up with the funds to build schools now, with an AAA bond rating, just wait until this group of county commissioners spend all of OUR savings and gets OUR bond rating lowered to a single A. Then we can pay two to three times in interest as we do now; all because the current make-up of the board of commissioners, controlled by Democrats, is too willing to spend YOUR money freely, but too scared during an election year to admit what they’re doing.
At some point I hope that WE can elect county commissioners who actually understand finances and budgeting and don’t use OUR tax dollars for their own personal playthings.
I’m tired of having elected officials who have never owned their own company and have never understood what it’s like to make payroll and live within their means, decide how much of MY money to take. I hope everyone else in Mecklenburg County is too, because in two years, we’ll be out of money. I wonder how much they’ll raise taxes then if Democrats are still in control?
Charles Jeter, Special to Pundithouse – Used by Permission
Short URL: http://pundithouse.com/?p=1076