(Repeat for additional subscribers)
April 3 (The following statement was released by the rating agency)
North Las Vegas, NV's efforts to remain solvent were
dealt another blow on March 21when the state Supreme Court rejected the city's
appeal of a $4 million judgment related to land the city had planned to condemn
and redevelop. Fitch's 'B' rating on the city's general obligations, with a
Negative Rating Outlook, indicates that material default risk is present.
In January, district court granted summary judgment to labor unions in their
suit challenging the city's ability to freeze contracted salary increases
through a declaration of emergency. The city is trying to negotiate that
settlement down from $25 million while dealing with an estimated $18 million
(about 15% of spending) general fund budget gap for fiscal 2015.
As state law bars Nevada municipalities from filing for bankruptcy, the state
could become the receiver if the city is unable to close its budget gap and
successfully negotiate the settlement for back pay. The Nevada Tax Commission
could also eventually ask voters to approve disincorporation. Fitch believes
bondholder repayment could be at risk in either situation.
To date, the state has provided some oversight through its Committee on Local
Government Finance but has not indicated any interest in state receivership.
Current statute requires that taxes for bond repayment continue to be levied
under disincorporation. However, under state receivership, the statute directs
the state to formulate a debt liquidation program.
The city's fiscal troubles stem from steep declines in revenues due to the
severity of the recession coupled with multiyear contracted pay raises. North
Las Vegas has seen little benefit from the economic recovery that is boosting
revenues elsewhere and has virtually no additional expenditure flexibility. A
modest $9 million in general fund reserves at the end of fiscal 2013 has been
whittled down from $45 million in fiscal 2008. Likewise the city's water
wastewater fund has drawn on its reserves largely to support the general fund,
dropping to $50 million in unrestricted cash in fiscal 2013 from $178 million in
North Las Vegas has about $436 million in LTGOs outstanding (including $292
million secured by the water and wastewater revenues) with about $8 million in
fiscal 2015 debt service costs paid from the general fund. The utilities pay
about $23 million in annual debt service.
Nevada local governments are required to file a tentative balanced budget with
the state by April 15. Management is planning to present its budget to City
Council on April 10. However, no clear plan to address the city's deficit has
been identified. We will continue to monitor these unfolding events.