Shreveport Faces Bond Rating Downgrade
Shreveport, a vibrant city known for its rich culture and community spirit, recently received some challenging news regarding its bond ratings. As many of us might know, bond ratings are crucial because they reflect how well a city can handle its debts and financial responsibilities. This is essential as it can impact the cost of borrowing money for various projects and improvements throughout the city.
The Rating Agencies Speak
When it comes to understanding a city’s financial health, agencies like Moody’s and Standard & Poor’s (S&P) play a pivotal role. These organizations assess the creditworthiness of cities, companies, and even entire countries, providing invaluable insight to banks and investors. They use a simple letter grading system, where AAA is the gold standard, and D indicates a failure to repay debts.
As of their recent evaluations, S&P has maintained a BBB+ rating for Shreveport’s general obligation bonds, which is reassuring as it suggests a stable outlook. However, Moody’s has decided to downgrade its ratings for Shreveport’s bonds. The general obligation unlimited tax rating has dropped from Baa1 to Baa2, and the senior lien revenue ratings have seen a similar decrease. Even the junior lien revenue ratings have slipped from Baa2 to Baa3.
What Does This Mean for Shreveport?
This downgrade isn’t just a number; it has real implications for Shreveport. The city is now expected to face higher borrowing costs, which could limit its ability to fund important projects or improve local infrastructure. Following this move, Shreveport is estimated to carry around $2.1 billion in total outstanding debt.
The reasons for this downgrade are rooted in some tough financial realities. The city has experienced significant declines in its fund balance reserves, and these declines are anticipated to continue through fiscal 2025. Shreveport is also grappling with increased long-term liabilities, particularly those tied to essential consent decrees regarding its water and sewer systems. As it stands, Shreveport’s cash reserves are low, sitting at just 32% of operating revenue, along with a troubling 1% in fund balance reserves.
Challenges Ahead
Moreover, the city is facing declines in sales tax revenue, which has compounded the issues related to funding capital projects. Long-term liabilities are on the rise, as they now stand at approximately 444% of fiscal 2023 revenue. Additionally, fixed costs have climbed to almost 27% of fiscal 2023 revenue and are expected to go even higher as the city layers in new debt from future bond issuances.
Finding Silver Linings
While the situation appears concerning, it’s not all doom and gloom for Shreveport. One of the city’s bright spots is its stable tax base, which is bolstered by various institutions, including several universities and the nearby Barksdale Air Force Base in Bossier City. This stable economic foundation provides a glimmer of hope for future growth and stability.
Effective governance is crucial for steering Shreveport through these uncertain financial waters. The city’s leaders will need to find ways to address the declining reserves and explore solutions that could help generate the revenue needed to keep pace with expenses.
Looking Ahead
As residents of Shreveport, it’s important to stay informed about these financial developments, as they can directly affect your community. Hopefully, with strong leadership and proactive measures, the city can navigate these challenges and emerge even stronger. After all, Shreveport has always been a resilient city, with a community that looks out for one another.
