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Saturday, June 28, 2008
County Poised to Default on Stadium Bonds?
Posted by Michael Earl Patton
Government bonds are supposed to be extremely safe investments. Not only do they normally have a dedicated stream of revenue for the payments, they are also generally insured to boot. The insurance companies try to make certain there are no unpleasant surprises so they don’t have to pay out money. One of the ways they do this is to demand copies of the annual audited financial statements.
Even if the next interest payments are made, the county appears poised to default on stadium bonds because they are years late in providing audited financial reports for 2004 and 2005. If the companies insuring the bonds decide not to wait any longer, after June 30 they can send a letter demanding the reports or the county would be in default.
As The Cincinnati Beacon has reported, the Hamilton County Auditor has not released any reports about the financial condition of the county since 2003. Audited reports for those years are also not available due to unresolved issues with the State Auditor.
A default would doubtless lower the county’s credit rating and mean the county would have to pay higher interest rates to borrow money. For residents of Hamilton County it would mean a cutback in services or higher taxes or both.
Here’s what the 2006 stadium bond prospectus says on p. 34 about the stadium bonds issued in 1998:
It is an event of default under such Insurance Agreements if audited financial statements are not received within 90 days after written notice from MBIA. MBIA has not delivered any such notice and has waived the County’s non-compliance with the Insurance Agreements with respect to the financial statements for the years 2004, 2005 and prospectively for so long as the County continues to diligently pursue a rsolution of those audit issues; provided that the MBIA waiver will expire on June 30, 2008. (emphasis added)
MBIA is the company that insured the stadium bonds issued in 1998. A similar statement concerns the bonds issued in 2000, insured by Ambac. A statement in bold print alerting potential bond purchasers of the lack of audited financial statements is on page 6, again with the statement that the non-compliance waiver will end on June 30, 2008.
If the June 30 deadline is missed the insurance carriers can extend the waiver or notify the county that they will be in default unless the county produces the annual audits.
The Cincinnati Beacon has made repeated inquiries to the county auditor, Mr. Rhodes, as to whether the deadline will be met or if it has been extended. So far there has been no reply.
The Beacon is of the opinion that the financial condition of the county should be available to the public. This is also mandated by state law. It appears that there is a risk of a default—a technical default perhaps, but still a default—on hundreds of millions of dollars of county debt that could have negative consequences for Hamilton County residents. We want to know what’s going on.
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28 Jun 2008 at 11:42 pm | #
Why would the insurance company declare a default if a default would make them have to pay out? Isn’t it in their interest to prevent a default, should I say, by hook or crook?
Here’s something I don’t understand; before the JFS adverse findings, the (independently) audited financial statements of the county had already been released, hadn’t it? They didn’t know until much, much later that there was a problem at JFS, right? So, how did that hold up the county’s release of audited financial statements (audited by an independent firm, not the State)?????
29 Jun 2008 at 07:16 am | #
So much for the Dewine project promoting transparency.
Has there been a statement from Mr. Dewine on this predicament?
29 Jun 2008 at 09:27 am | #
If the insurance companies declare a default they can take certain actions to increase the chances that they will be paid.
The problem is that although they are surely being paid now, without financial information they don’t know if they will continue to be paid in the future. Some of these bonds may not be paid off in full for 30 years. The bond holders want to know what’s going on now so they have an idea as to what may happen in the future. Since the county isn’t telling us, it probably isn’t telling them either.
If the county continues to stonewall on its financials, people and banks won’t lend the county any more money at favorable rates. The county would have to go to the equivalent of a pay-day lender. How would that look if, say, Fifth Third stopped all loans to its home county? Would anyone else loan us money at reasonable rates?
The insurance companies have a vested interest in protecting their reputations. Hamilton County makes up only an extremely tiny portion of their business. It would be better for them to declare a technical default a few years before any actual default of payments happened rather than waiting until afterwards.
The insurance companies would much rather see Hamilton County suffer, especially if it’s the county’s own fault, rather than see their core business destroyed.
29 Jun 2008 at 10:57 am | #
Ryan,
They are laws and regulations that they have to go by regarding any security. Also for Muni-bonds. They are designed to protect the investor. That’s why a company or any security has to file reports. It is so that investors can see what really is, and make a sound choice on the particular intstrument, be it a stock, a corporate bond, or a Muni-bond.
There is one rule that is very important, and I can say the gist of it in one sentence .
“Failure to disclose a material fact” .
So 5/3 for instances, does not file its true financial condition. Someone buys the stock based on the reported facts, but the banks , for instance doesnt disclose adverse conditions that COULD, or IS something that can basically wipe them out. Could be a lawsuit. Or could be that 60 % of its customers are near default in their credit cards etc etc. They could say they have a 40 % jump in revenue , and not disclose that their reserves are down. Or as they HAVE disclosed, 5/3 has a pretty big lawsuit in Federal court in Dayton, from investors right now, that could sink them.
They have to be transparent if you are a public company, or a city, school baord, or Country that issues bonds.
This is why my former Employer went out of business. they did not disclose their exposure to the Hedge fund due to that it contain many subprime loans, they they did not know how to value and that basically, they were worthless. Banks, Brokerage firms etc etc have all been nailed by this .
So they have to disclose material facts.
There was an interesting article that was in the CE. The county was absouletly FRANTIC that the bond rating Company Moody’s, was going to downgrade them. They promised them they would raise every tax they could, from Dog permits, charging Anderson etc etc for the Sherriff patrols, and every other thing thay could. Then, and I couldnt believe this, after Moody’s kept thir rating, said IN THE PAPER,” we have no intention of doing any of these” So, they lied to Moody’s, or they are lying to the people being that this stuff allowed them to keep their rating. In the same article, they stated that the revenues were going to be off. So they will have No choice but to raise the money as the said they would.By being insured, they are essentially using the insurance companies credit rating. I will post an basic explanation that may help explain it, and why this is odd, and the demand of the insurance company on these bonds have given a waiver, or set a time for the financials.
MEP is right, there is something seriously wrong here with the lack of the financials. This is why these bonds are insured. Insured bonds get a higher rating.
29 Jun 2008 at 10:59 am | #
Information on how it works.
What are municipal bonds?
Municipal bonds ("muni bonds") are debt securities issued by state and local governments, or their authorized agencies, to borrow or raise money for public purposes such as building schools, highways, or hospitals. When you purchase a municipal bond, you lend money to the “issuer” (i.e., the government entity that issued the bond), which, in turn, pays a set amount of interest while you hold the bond and returns your principal investment on a specified maturity date.
A primary feature of many municipal bonds is that the interest income an investor receives is generally exempt from federal income tax. The interest may also be exempt from state and local taxes if the investor lives in the state where the bond is issued. Municipal bonds, therefore, also are known as tax-exempt bonds.
Because they offer tax-free income, municipal bonds generally have annual yields below those of corporate bonds or U.S. Treasury bonds. These low yields allow state and local governments to borrow money for public projects at below market rates.
How are municipal bonds traded?
The municipal, or “muni,” market does not operate via a centralized exchange. Instead, it is an over-the-counter market-a network of dealers and brokers that connect buyers and sellers. Some bonds are “actively traded,” meaning that they are traded on a regular basis. However, many investors buy and hold their bonds until they mature, so certain municipal bonds may not trade for months or years at a time.
Securities dealers that trade municipal securities must register with the Municipal Securities Rulemaking Board (MSRB), which sets the rules for the municipal bond market subject to the oversight of the U.S. Securities and Exchange Commission (SEC).
Who owns municipal bonds?
Individual, or “retail,” investors are the largest holders of municipal securities. They hold 35 percent of municipal bonds directly and another 36 percent indirectly through mutual funds, closed-end funds, UITs, and ETFs. According to ICI’s most recent data, investment companies of all types hold $907 billion, or 36 percent, of the $2.5 trillion municipal bond market. Mutual funds alone account for 32 percent of all U.S. municipal securities, totaling over $809 billion. Closed-end funds hold 4 percent, totaling $89 billion; municipal bond UITs hold $8 billion; and ETFs that track municipal bond indices hold $575 million in assets.
How are municipal bonds regulated?
Unlike registered investment companies, issuers of municipal securities do not have to file registration statements with the SEC. However, information about these issuers, including details of their financial condition, is available from various sources.
What is the role of credit rating agencies related to municipal bonds?
One way to evaluate a municipal securities issuer is to examine its credit rating. Credit rating agencies assign credit ratings based on their analysis of an issuer’s ability to make interest payments and repay principal in a timely manner. (Credit rating agencies also grade corporate bonds, but their analysis of corporate bonds differs from their analysis of municipal bonds.)
Bonds rated BBB or Baa, or better, are characterized as “investment grade,” meaning that they have a high probability of being repaid and have few speculative features. Municipal bonds with lower or no ratings carry higher risks, but may also pay the investor higher interest rates to compensate for that risk.
In addition to the ratings provided by credit rating agencies, most institutional investors, including investment companies, conduct their own credit analysis.
What is bond insurance?
Bond insurance is a type of credit enhancement. A bond insurer unconditionally and irrevocably guarantees that interest and principal will be paid as scheduled-on time and in full-even if the bond issuer defaults. If a bond carries insurance, it typically is insured in the primary market, at the time of issuance, but it may be insured at any time in the secondary market. For some small municipal issuers, access to capital markets is made more affordable by the use of a credit enhancement like bond insurance.
Many of today’s municipal bonds are insured by monoline insurers, or insurers that back debt securities only and are not exposed to risks from any other lines of business. They may, however, be exposed to other forms of risk (i.e., interest rate risk, market risk, etc.) Monoline insurers must meet the requirements of insurance regulators in every state where they do business. They are closely monitored by the major credit rating agencies.
Monoline insurers conduct an underwriting process before insuring a municipal bond: the insurers examine the issuer’s tax base (if applicable) and operations, regional economy, financial condition, existing debt, expected future borrowing, and spending requirements, as well as the legal provisions securing the bonds.
Bond issuers, or the investment banks and securities dealers that sell the bonds, typically pay the insurance premiums. There are no direct charges for investors, but the investor may earn less income than if the bond were not insured because of the added protection provided by the insurance.
Why do bond issuers buy insurance?
Bond issuers use bond insurance because it improves the credit quality of a bond, making it easier to sell. Bond insurance boosts credit quality by offering protection against default or downgrade if a bond issuer cannot meet its obligations to pay interest and principal to bondholders.
Insured municipal bonds are rated based on the credit of the insurer (based on its claims-paying ability) rather than the underlying credit of the issuer. Historically, this has improved the credit rating of the bond. A higher credit rating allows the issuer to benefit from lower financing costs because bonds with high ratings-and, therefore, greater security-pay lower interest rates. This also leads to enhanced liquidity for insured bonds because there is greater demand among investors for highly rated securities.
Accordingly, an issuer may seek bond insurance for a number of reasons. If a bond issuer’s credit would not earn a high rating, bond insurance could improve the credit quality of the bond. But even highly rated bond issuers use bond insurance-to lower the costs of borrowing.
How are monoline insurers rated?
Credit rating agencies frequently evaluate bond insurers’ claims-paying ability-through detailed analyses of financial resources, operations, and exposures-and publish regular reports on each insurer. Credit rating agencies look at key indicators, including the quality of the insured portfolio, capital adequacy, financial performance, operating efficiency, risk management, liquidity of assets, reinsurance, business viability, ownership, and the skill and experience of management.
What happens if a monoline insurer is downgraded?
Because an insured bond carries the rating of the bond insurer, the bond’s rating will be downgraded when a monoline insurer is downgraded. With a lower credit rating, the market value (i.e., price) of the underlying municipal bond could fall because the perceived risk of owning the bond has increased. The presence of an insurance policy alone does not guarantee a municipal bond’s price in the secondary market. As with any other security, the actual price is determined by the market at the time of resale. Municipal bonds sold prior to maturity may be worth more or less than their original cost. Generally, if the price of a municipal bond drops, higher yields will follow.
As noted above, however, some issuers obtain bond insurance primarily to lower their costs of borrowing. If these issuers carry a credit rating independent of the credit rating from the monoline insurer, market participants may “look through” or disregard the downgrade of the insurer. Depending on the market at the time of resale, this might enable the issuer to maintain a higher trading price.
Presently, the credit ratings of certain insurers are under review due to subprime lending exposure that threatens their ability to pay claims. This, in turn, has resulted in some rating downgrades. Municipal bond funds and money market funds holding municipal bonds face certain regulatory requirements regarding the quality of the securities held in their portfolios. These funds also state in their prospectuses that they will only hold securities of a certain quality. If these funds hold securities that have been downgraded because they are insured by downgraded monoline insurers, the funds may have to determine whether they can continue to hold those bonds.
In the long term, the inability of monoline insurers to maintain high credit ratings may restrict the supply of high quality, short-term securities for municipal money market funds and other municipal bond funds.
What is the credit quality of most of the underlying municipal bonds?
Monoline insurers typically insure only municipal bonds that are of investment-grade quality on their own. The underlying bonds may or may not be rated by a credit rating agency. A bond without a rating does not necessarily carry a higher level of risk; it simply means that the issuer did not apply for an underlying rating (a rating on the uninsured bond), possibly because it did not want to incur the additional cost.
What other types of municipal securities are insured by monoline insurers?
In addition to traditional municipal bonds, monoline insurers provide insurance for variable-rate demand obligations (VRDOs) and tender option bonds (TOBs). Monoline insurers also insure structured finance bonds and certain international debt securities.
What are variable rate demand obligations and tender option bonds?
Variable-rate demand obligations (VRDOs) are debt securities that bear interest at a floating, or variable, rate adjusted at specified intervals (daily, weekly, or monthly) according to a specific index or through a remarketing process. Holders can redeem these securities at designated times. Issuers offer VRDOs in order to access the short-term market to obtain lower interest rates. Tender option bonds (TOBs) are similar to VRDOs but are synthetically created by a bond dealer with long-term bonds purchased in either the primary or secondary markets. Both VRDOs and TOBs are short-term, tax-exempt instruments whose yield is reset daily or weekly based on an index of short-term municipal rates.
VRDOs and TOBs are purchased at par, the face value of the security. Each structure includes a liquidity facility which provides a “put” or demand feature. This allows the bondholder (e.g., a fund) to put the security back to the remarketing agent and receive face value plus accrued interest with specified notice. A remarketing agent-a bank or other entity-helps to make a market for the securities and ensures that a holder’s put is honored by reselling the products, holding them in its own inventory, or arranging for the holder to be paid from the bank liquidity facility. In addition to providing a source of cash to satisfy redemptions by fund shareholders, these liquidity features operate to shorten the long-term bonds’ maturity and make them appropriate for a money market fund.
What is the credit quality of VRDOs and TOBs?
Most VRDOs and TOBs are highly rated due to credit enhancements (such as bond insurance or letters of credit), which guarantee timely principal and interest payments, as well as the liquidity facility, which provides payment for tendered bonds. In most cases, the liquidity facility requires that the municipal bonds maintain certain credit ratings. Consequently, like insured municipal bonds, VRDOs and TOBs may be affected when monoline insurers are downgraded. For example, a downgrade of the monoline insurer may trigger a “termination event” that releases the liquidity facility from its obligation to buy back the security.
Funds are taking action in advance of this possibility. Some funds are unloading the securities from their portfolios by exercising the put feature to the remarking agent, thereby receiving par and accrued interest for the security. Other funds are obtaining changes to their contracts with liquidity providers to preserve the liquidity facility regardless of the monoline insurer’s rating, by linking the termination events to the credit rating of the underlying issuer and/or the monoline insurer.
A money market fund that holds VRDOs or TOBs in its portfolio may have to review whether it may continue to hold securities that are enhanced by the downgraded monoline insurer.
What is an auction rate security?
Auction rate securities (ARS) are municipal securities with a variable interest rate that is set periodically through a “Dutch Auction” process. Auctions are typically held every 7, 28, or 35 days, and interest on these securities is paid at the end of each auction period. ARS trade at par and are callable at par on any interest payment date at the option of the issuer. Although ARS are issued and rated as long-term municipal bonds (20 to 30 years), they are priced and traded as short-term instruments because of the liquidity provided through the interest rate reset mechanism.
During the auction, a broker-dealer submits bids, on behalf of current and prospective investors, to the auction agent-typically a bank. Based on the submitted bids, the auction agent will set the next interest rate by determining the “clearing rate,” the lowest rate to clear the total outstanding amount of ARS. The program documents for an ARS also define situations under which a “maximum rate” is used for the next interest rate period. Generally, the maximum rate is a multiple of a specified index or a fixed rate.
Unlike TOBs and VRDOs, ARS holders do not have the right to put their securities back to the issuer; so a bank liquidity facility is not required. As a result, money market funds cannot hold ARS because SEC rules restrict them to securities with a final maturity of 397 days or less. In addition, because ARS do not carry a “put” feature, they are very sensitive to changes in credit ratings and normally require the highest ratings to make them marketable. This is usually achieved with bond insurance. Thus, when a monoline insurer is downgraded, investors are less likely to participate in an auction for the ARS, reducing demand for the securities.
Typical investors of ARS include corporate and high net worth individuals, bond funds, and bank trust departments.
What is a failed auction?
An auction fails when there are more shares offered for sale in the auction than there are bids to buy shares, or if the clearing rate of the auction would be above the maximum rate defined in program documents. A failed auction does not mean the security goes into default, because the issuer continues to pay interest at the maximum rate; however, existing holders of the securities who wanted to sell them generally are not able to do so in that particular auction. Auction failures are the result of limited liquidity in the market for the particular ARS and not necessarily the result of an event of default by the issuer.
29 Jun 2008 at 01:11 pm | #
I think the DeWine project is still a good one, but it is designed to track expenditures. I talked with his office and they said they were working on a system where one could track back up from the expenditure to the contract that authorized it. Sounds good to me.
I don’t think this project is designed to answer questions about revenue, income, and debt, though. So it’s not a complete picture.
I talked to his office about this article before I wrote it. I didn’t ask for any statement because I knew that they would have to research the subject on their own before issuing any statement that meant anything.
29 Jun 2008 at 05:05 pm | #
Mr. Patton:
As I stated when the beacon first posted about the transparency project from Mr. Dewine:
Good first step, but not nearly enough, and not nearly soon enough.
It should be a complete open book. It is our money, let us see everything down to the last personal somewhat sexual e-mail to a co-worker, or even to some outside third person. It is our computers, our money, our budget, let us see, let us see, let us see!!!
We need to know who we are voting for and what we are voting for.
Mr. Patton, you are doing a fine job, and I commend you. Some day I will have the time to do the same. I pray that you realize that freedom is the only solution.
God bless, and god speed.
29 Jun 2008 at 05:08 pm | #
R:
This is great info for people to read. I already know how it works and as you know, in today’s environment, the county is in for a downgrade.
I do have one question though.
Could someone gobble up these bonds in the form of derivitives, for pennies on the dollar and take control over the stadium?
30 Jun 2008 at 10:13 am | #
Mr. Scott Ryan -
The Auditor is an independently elected official. None of the Commissioners can force him to release his audit information. The Commissioners only have the powers expressly given to them in the Ohio Revised Code. If you have a problem with that, take it up Code, not DeWine. The complaint about the Auditor is completely valid, but lay blame where it belongs.
30 Jun 2008 at 03:42 pm | #
Mahatmama:
Not sure if you are correct or not, but if Mr. Dewine is big on transparency, why would he not make a statement about this.
If only we knew the whole story. What do you think would happen?
30 Jun 2008 at 11:08 pm | #
Scott,
Not likely .That is where not the danger here.. The Bonds are insured , and it is the rating of the Bond insurance company , not the County with these particular bonds. The insurance company I am sure did some due dilligence. The Counties rating is not horrible, and still investment grade, but just like a credit score, the higher it is , the less is costs to borrow. With bonds, the higher rating, AAA being the best, the lower the interest rate basically.
Cincinnati Public schools is a great example. Most of their bonds are AAA rated. MEP and I talked about this and he had an interesting point, but basically they are rated so high as a quote from Moody’s said “ Because of the williness of the community to support increased taxes ( levies) to improve the schools”. MEP pointed out that the last vote on this, barely made it, and what he said reminded me of the “ Red Truck” story I read on the Beacon. Never the less, it was the ability to tax and williness of the public to be taxed that got them rated AAA.
What really got me thinking was the “ BIG sigh of relief” expressed by the County 3 in an article in the Cincinnati E. I dont have it, but I think I sent it to MEP. This article ASTOUNDED me that they would even allow that in print or give that interview. It would have virtually not have come up. Unless they did it for other bond issues ( problems). Joes Public didnt get it, but to those who know how it works, it was a major admission. Anyone aware that the County was going to possibly have it’s bond ratings drop? Not many, so why would you put it in the paper?? BIG FLAG and Stupid.
The County was most likely going to be downgraded due to the lower revenues recieved by the county. The commissioners even admitted that toward the end of the story, that they expected revenues to be way off. What was astounding to me was that they told Moody’s that they would basically, raise every fee they could, from Dogs, to anything else they could get their hands on, including charging , for instance, Anderson and other townships for the company of Mr Leis and his Deputies Patrol of the Townships. Then, after making that statement, they said for the C.E.’s benfit, and I am sure the public that “ they ,of course has no present plans to do this”.
So, it was either a wink-wink deal, or they in fact promised them that they would raise all these taxes. It would be a misleading statement, or as the rules for underwritting and sales of Bonds and stocks say “ Failure to state a material fact, or false and misleading information” is a serious violation of the rules of the MSRB and the Securities and Exchange commission. 5/3 Bank has just just been sued by a group of Mutual Funds, Pension Funds etc etc for issuing a class of stock where they totally misrepresented their true financial condition. With a stock, and a bond, that would cause the price of a traded instrument to drop. 5/3 Bank is in serious trouble.The stick is down to 10 from the year high of 58. They will lose this suit,and could bring the stock to nothing( for instance) but my finanical bet is that they will be somebody else in the very very near furture. The Bonds are different, as a muni-bond is back by the full faith and power of the Counties ability to raise taxes. The issuer or insurance company could sue them, but that would be disaterous to a County, as a default would make future bond issures basically junk. Remember the days when Mike Milken was doing fnding of corporate buy -outs using junk bonds? The interests rates were out of this world, but so was the risk. But it is like the sub-prime stuff, everyone was using borrowed money to speculate. The difference between my example is that you can’t liquidate a County. you can a bank.
The Counties answer would be to simply raise taxes. Problem with that, isnt the election soon? That would not go over well, so the hold on the rating , which is really a delay in the downgrading , was a close call. I think after the election, they will have no choice but to raise taxes. With all due respect, that was the dumbest thing in the world to give that interview. In it, they either lied to Moody’s or they lied to the people. I even wrote to the reporter, as she did not check any of the facts, and just printed what they said ( gang of 3) The article was a fluff piece, pure and simple. It did it’s job, as nobody, got the seriousness of the situation. They didnt because of the way it was written. They got a reprive. If they dont do what they said to Moody’s, raise the taxes, or revenues suddenly jump double digits, they wont get a second chance and will be downgraded. There is a certain bit of greasing the wheel that goes on, but reputations and lawsuits are not something that Moody’s goes for. So, that tells me they indeed will raise the taxes. They bought time until after the election.
MEP and the Beacon has done an outstanding job on this. This is very serious business to the people of Hamilton County. The people that pay for those bonds.
There is more to this story , and I know MEP is working on it. These things, are complex and difficult to undercover, because those we trust , and elect to run all this for us, don’t share it with the Public. Look how much trouble it was for the Beacon to get ANYTHING from the city regarding Fountain Square, and the restaurant. That should be simple, but it was not. It should be simple for the city to clear up. They have not, and in fact, sent something that had nothing to do with the question.
Now, think about a series of Bonds, different maturities, etc etc, and it is very complex. Just like the city, if they dont share the information, it takes time.
This goes way deeper than what is known so far. This is not, either with the city, or the County, a conspiracy theory. The Cities stuff, is just Shady. EXTREME gray if not illegal. The Counties issue, depending on what the State does ( and that is Political) I think will make the city look like kid stuff.
#9 No, they can’t force him, or the State, but they can issue demands . They can put pressure. Why aren’t they? How are they doing business if they don’y know their financials? They MUST have copies, as like a person, you cant go spending money you dont have, or at least some idea of what you do have right?
Why are they not asking questions? Maybe they already know, and are trying to keep it quiet until they can patch it ? I am really surprised that after how many years of no financials that the people are not screaming ( but, do they really follow this stuff? no ) or that the Feds are not looking into this. But , politics.... it is an election year.
Kudos again to the Beacon and MEP. I know how hard it is to dig thru this for the answer, but you are on the right track. Something is seriously wrong here. I will help you in any way possible for the next chapter. If the people knew, just what you knew so far, printed and not yet printed, they would go ape S*&t.
If it didnt cost a zillion dollars, this would a great issue to bring before a Federal Court. One simple Question. “The reason for the lack of County Fincancials for 3-4 years? “ It’s not about the County Engineering department. It doesn’t take that long to investigate and audit a department. That is a smoke screen or not the real issue.
01 Jul 2008 at 05:34 am | #
R:
Again, great stuff. Very informative. Thank You.
01 Jul 2008 at 08:28 am | #
Here’s the article from the May 16 Cincinnati Enquirer about how Hamilton County keeps its bond rating intact.
As R noted, it’s a peculiar article. A rating agency came to investigate Hamilton County because of concerns, says the rating has a negative outlook due to shrinking reserves, talks about the need for all kinds of tax increases which the commissioners reject, and then (per the article) says the county has been removed from a credit watch. Why?
Keeping the credit rating is good news, but reading the article makes one wonder if something else is going on that’s not in the Enquirer.
01 Jul 2008 at 01:12 pm | #
If I may Dean, I would like to post part of this article that tells the story.
“Hamilton County’s bond rating - similar to a credit rating - will not be downgraded”
R. Ok great.
“The county advised the bond-rating company that it could keep its rating intact by raising the real estate transfer tax; the dog license fee; adding a cigarette and alcohol tax; and requiring townships to pay for patrols by county deputies.”
R ...These are just some of the taxes we can raise. Said to Moody’s so they would not get downgraded.
County commissioners said Thursday they have no intention of actually enacting those increases.
R. It is an election year. This statement means they lied to Moody’s or the reporter and the people. you will see why later. read the above line again.” No Intention.....” I cant believe they put that in print.
“None of those are things we are proposing or intending to do,” said Commission President Todd Portune. The ideas were noted by Moody’s Investors Service, but are not required for the county to keep its rating.
“Moody’s wanted to know what are all the things in your arsenal from soup to nuts,” said Portune.”
R Very True. Where are you going to get the money ???
“It’s very positive development,” said County Administrator Patrick Thompson of the Moody’s report. “It’s nice to have an outside rating agency look at the actions taken and confirm we’re doing the right things.”
R. wrong. I am going to put the story in a different order, so we can move beyond the retoric and see the real story.
Commissioner Pat DeWine said he definitely would not support the tax increases. Commissioner David Pepper said he thinks the county can remain healthy without raising those taxes and fees.
R. Commissioner Pepper “ Thinks the county can ... “ Pat Dewine say He would Definately not increase the taxes
Portune said the county has worked hard to improve its financial picture, so the Moody’s report was “very positive news.”
R. Maybe they have, but as you will see, this is NOT positive news. They bought some time.
“But the county still has some tough decisions to make this year.
Budget Director Christian Sigman said that the county still has to find a way to balance the budget because revenues are falling short this year.
The county budget office estimates there will be an $8 million shortfall by the end of the year. The reserve fund - the equivalent of a savings account - is projected to dwindle to $500,000 by the end of the year. It should be $40 million. If it can’t keep its finances in order and meet its fiscal goals, the county will face a downgrade next time around.”
R. Or they will raise said taxes . Anyone feel the economy of Hamilton County is going to improve dramaticaly in the near future ?
“Moody’s trusts the management and political powers in this county and that we can do what needs to be done,” Sigman said. “Now we just have to make it happen.”
R- Moody’s trusts that they will raise the taxes they said they could. Or probably told Moody’s they would. Again , I site the CPS Bonds. the ability to raise the tax.
“They wanted to know what is your total capacity to act irregardless of whether you do act.”
R- Nonsense. They want to know if you have the capcity to raise the money. They do, and told them how. They care if you act or not. here is why.
Moody’s had given the county 90 days to fix its financial problems after voters defeated a sales tax increase in November. The tax would have paid for a new jail and replenished $12 million the county spent from its reserve fund to settle lawsuits and rent jail beds for overflow inmates.
County commissioners in December made cuts, laid off workers and froze salaries to balance the budget. It also established policies to begin replenishing its reserve fund.
R- What are the policies the County has established to begin replenishing the reserve fund? What cuts? Laid off workers and froze salaries to balance the buget? $ 39,500,000. in savings from these actions? How do they know ? Where are the County Financial reports?? They are operating from some financials . Why are they not available to the Public? Plus the projected 8 million short fall. once again…
“If it can’t keep its finances in order and meet its fiscal goals, the county will face a downgrade next time around.”
R- How are they going to meet their goals? Raise said Taxes?
The county’s rating is Aa2, high on the rating scale
R- AAA being the best. While this is investment grade, it is not spectacular. A Downgrade would be a big hit. A default or hint of a default would be a disaster in regard to MEP’s article.
It is now removed from a financial “watch list,” but is assigned a “negative outlook” because its reserve is low.”
R- Question, what is the plan to increase the reserve? Above in the story, part of the Jail levy , “they were going to use 12 million of that to replenish reserves”. Now that is out of the question, How are they going to do it with a projected shortfall?
It is a legitimate question to ask the commissioners. Raise the taxes? that’s how they were going to do it before. This is what they told Moody’s. Are they going to risk a downgrade? NO. Why? This is where this article leaps into what MEP has printed and still working on. there is more to that story. This one gives some great insight to what’s going on. To most people, by the way it was written, would seem like good news. It was for the day, as they were not downgraded. They bought sometime.
Remember MEP’s story that the County was given a waiver on the financials for the County regarding the stadium Bonds. June 30th was the deadline. I would ask the commissioners the staus of that, as if they ( MBIA) considers the lack of financials as a technical default, this great news of not being downgraded would be moot.
I think it is reasonable to ask the Commissioners what is going on? Where are the financials? Did they get an extention from MBIA ? Are they planning to issue new bonds? That’s as far as I will go, as MEP is working on the issue.
This was, to me, a very interesting article. It didn’t tell me what a great job they were doing ( no disrespect intended) it told me that they dodged a bullet for a short time.
It really surprised me they even gave this interview. They obviously have the financials of some sort they are working by.
They have 2 choices, slash services, or raise taxes. It looks like though, in my opinion, they will have to do both
02 Jul 2008 at 12:17 pm | #
These problems are a direct result of the poor financial management practices of Todd Portune and David Pepper. Our county needs new leadership.
02 Jul 2008 at 02:14 pm | #
I am not sure who’s fault it is, but I sure know that I wish that they would just be honest and not do these fluff stories about how great everything is, when they know dam well they either lied to Moody’s or are lying to the people about raising taxes. It certainly wasn’t Moody’s, if they plan on doing a Bond issue again. Certainly The Commission knows that Moody’s reads the Cincinnati paper and every other paper in the country. I would hope.
You know, as the said back in the old days “ times are bad”. People are struggling to put gas in the car, if they still have a job. Or do they feed their kids? Not go to the Dr, buy gas or feed the kids. That’s if they have insurance. The county has to buy gas, supplies, fix roads and all that other stuff we dont see. So everyone is tightening their belt. If they still have one.
But it would be VERY refreshing if any politician, County , City, Congress , Presidential candidates.. whoever, would just stop the freaking BS, be honest with the people they represent. If your going to raise taxes, say so, so people can plan. A Politician who does that might be surprised about refreshing just that alone would be.
It’s the stupid stuff. The working Mom who runs the Hustler store downtown, might have to register as a sex offender because she works in the store ?The one the County gets money from through the sales tax?? Hey you wanna know a secret? People have sex and it is none of your business. It’s none of your business !! Do you know that I read in the Wall Street Journal once that the zip code the had the most mail deliveries of porn and sex toys in the United States was in guess where????? Hamilton County !! Better get a task force on that.
Mr Chabott , sending out letters saying that it’s time to rally the troops because his opponent, just happens to know someone who supports abortion , so therfore he is for it, even though he is a Catholic who is opposed to abortion.
Wasting money on this Banks thing, which all they have to do is go to Atlanta and see Atlantic Station, which is the Ga version of our Riverfront by the same people to see what a financial disaster that it is. The same this one will be.
Sitting around thinking maybe Paul Brown Stadium was really not a good deal for the county.
Maybe its time to say Time out, and quit doing all these whacky deals. Focus on why the state is looking into the County Engineering problem. Focus on getting your financials right. It is absolutely outrageous that this county has not produced financials to the taxpayers in 3-4 years? WHY ??? Does that have anything to do with a possible Moody’s downgrade? Saying what a great job your doing because of not being downgraded, but at the same time, you are warned that if you dont get it together you will be, and you are on fiscal watch , your proud of that?
Start thinking about your people. You know, the ones you represent. The Voters.. Oh that’s right, I forgot, there is a deal for who gets to run in this election. Who gives you and your parties the right to do that?
Oh we really really need to build this jail . Well, we kinda of do, but we really need the 12 million dollars we attached to it.
All of this isn’t going to get any better anytime soon you know. Being on fiscal watch is not a good thing. Getting off of it will be. The Counties financials are a mess. You can’t keep going to the people to fund the game. This is a serious time in our history. I hope you understand that.
03 Jul 2008 at 10:08 am | #
Thank you Comissioners for using the newspaper to tell the truth this time. well, most of it.
I will remind you that you ALL stated that you would NOT raise taxes, Rasing “some fee’s” would have reason. Being that the County Residents have no idea of the yearly Financials for 3-4 years, It is the responsibility of the Commission to be clear and open as to what is going on.
You well know what it is costing the county for basics, Gas, healthcare and services, imagine what the people are going thru. Let’s reamain consistent after the election. That would be, remembering “ We will not raise taxes. “
Remeber what got you in this postion. Money for a museum, while the story is important, you do not have the money to fund it. Paul Brown Stadium. The Banks will be another one.
The next 2 to 3 years are going to be VERY difficult for everyone. Maybe longer for SW Ohio.
Admitting the real condition was a good first start. This next cycle is a chance for the Commission to shine, and lead the way for fiscal responsibilty by Government.
I hope you know that too.