May 5 A Las Vegas suburb is grappling with
financial problems similar to those that tipped the cities of
Detroit, Harrisburg, Pennsylvania and Stockton, California, into
insolvency, Fitch Ratings said on Monday.
North Las Vegas is struggling under flawed financial
decisions, escalating costs, limitations on raising revenue and
weak economic conditions, Fitch said. On Friday, the rating
agency affirmed the city's bonds as speculative grade, or junk,
at 'B' with a negative outlook.
These factors, playing out over many years, contributed to
recent insolvencies and bankruptcies in municipalities from
California to Pennsylvania.
"North Las Vegas, while not in default, is nearing
insolvency," wrote Matthew Reilly, a director at Fitch. "The
city's dire fiscal picture stems from a steep drop in revenues
due to the severity of the recession coupled with multiyear
contracted compensation increases."
"North Las Vegas does not consider insolvency as an option,"
Mitch Fox, city spokesman, wrote in an email to Reuters on
Monday. Fox highlighted the city's tentative agreements with its
unions and potential new revenues from a 2,700-acre housing
development that is moving forward. "The future for North Las
Vegas is bright."
Last month, the city warded off concerns of a state takeover
by solving an $18 million budget gap with a tentative union
settlement over back pay. The unions also agreed to shift $10
million in compensated absences to future years, Fitch reported.
Nevada municipalities are not offered Chapter 9 protection.
But Amy Laskey, Fitch's managing director of public finance,
said North Las Vegas is looking at long-term, unsustainable
budget balances, with the gap between revenue and expenses
expected to grow.
Similarly the cities of Harrisburg, Stockton and Detroit
were also constrained by financial decisions made years before
that increased liabilities without corresponding plans to raise
new revenues. Harrisburg wound up in state receivership, while
Stockton and Detroit are working through Chapter 9 municipal
Located just miles from the Vegas Strip, North Las Vegas was
one of the hardest hit during the housing bust. Over the last
four years, North Las Vegas's combined assessed valuation was
cut in half, according to its 2013 comprehensive annual fiscal
To cut costs, the city of 223,000 people eliminated vacant
positions, implemented a hiring freeze, reduced programs, made
layoffs and offered voluntary separation packages. Some capital
improvement projects were delayed or canceled even as it pressed
ahead with a 170-acre multi-use park costing an estimated $130
million to build.
Fitch estimates the city's general fund deficit will sink to
$142 million by 2021, assuming only small increases in revenue
during the time. All three ratings agencies have downgraded
North Las Vegas to junk.
(Reporting By Robin Respaut; Editing by Diane Craft)