Photographer: Suzi Altman/Bloomberg

Poorest State's Capital Residents Boil Water From Broken Pipes

  • Jackson needs up $1 billion to fix century-old infrastructure
  • Mississippi city's reserves fell by 60 percent in fiscal 2015

Moody’s Investors Service’s rare four-level cut of Jackson, Mississippi’s bond rating shows the obstacles Mayor Tony Yarber faces in coming up with as much as $1 billion to repair and replace leaking water pipes and sewers and potholes.

It’s the same challenge faced by cities such as Atlanta, Baltimore and Cleveland where residents and taxpayers have fled, shrinking the resources to fix problems that drove them to leave. For Mississippi’s capital, which has shown up on a handful of lists of the worst cities in the U.S., the problem may be more exacerbated as its population has shrunk by about one-third since 1990 and deficits have widened and begun eating up reserves.

Yarber, a 37-year-old pastor, educator and lifetime resident who took office in April 2014, is seeking to use a 1 percent sales tax to repair streets, water lines and other infrastructure. The city has also forced non-emergency city workers including the mayor to take a day off each month without pay, extended the maturity of debt to free up cash in its budget and sought new businesses for the city of 172,000.

“We’re getting our financial house in order,” said Trivia Jones, director of Jackson’s department of administration, in an interview. “We’re focusing our budget on priorities and making it fit with what we want to do.”

Jackson is emblematic of problems cities across the U.S. face in coming up with $1.7 trillion, or $30 billion a year, by around 2050 just to replace water pipelines, some of which are more than a century old, according to an American Water Works Association forecast. The cost for keeping up with sewers is estimated to be “similar” to drinking water, said Greg Kail, a spokesman for the association.

Jefferson County, Alabama, sought bankruptcy because of debt issues connected with its efforts to fix its sewer system. New Orleans needs an estimated $6.2 billion investment in its water system. New York also is addressing the decline of its water and sewer system.

Jackson’s century old water and sewer system is affecting residents’ quality of life. The largest city in Mississippi has seen a downturn in its economy in recent years as employment has fallen by 5.1 percent and the assessed value of property fell 12.1 percent. Household income of $33,080 is two-thirds the U.S. average. The largest employers are the state, University of Mississippi Medical Center and the U.S. Government.

Boiling Water

When Jackson’s water lines break, they are routinely followed by warnings to residents not to drink tap water without boiling it first. In March Yarber declared an “infrastructure emergency,” a step often taken when communities are damaged by floods, tornadoes and other natural disasters. The city needed the designation for funding that could flow from federal agencies because it had been struck by a rough winter that led to several major water main breaks and damaged streets already riddled with potholes.

In 2012, the city reached a settlement with the U.S. Environmental Protection Agency and other agencies after 2,300 unauthorized overflows of untreated sewage, according to EPA documents. The agreement requires the city to fix the problem and pay a nearly $500,000 penalty.

The city’s revenues have failed to keep up with growth as people moving out of Jackson have left the city with declining wealth and increasing poverty rate, said Moody’s. The city is draining reserves to cover costs. Reserves declined by 60 percent in fiscal 2015, which ended Sept. 30, according to Moody’s. Another deficit is expected in fiscal 2016.

Rather than raise property taxes, the city furloughed employees and cut its annual debt service in a refinancing that saves $16 million over fiscal years 2016 to 2019, but extends final bond maturity to 2036 from 2019, a move that will create a present-value loss of $1 million, according to Moody’s report last month.

Borrowing Costs

Jackson said in a statement after the Moody’s rating cut that S&P had looked at the same information and maintained its AA- rating. S&P took the position that the city’s management and resources justified keeping the city at the same rating. Passage of the sales tax was seen as a positive step to addressing its infrastructure needs. This tax took effect in March of 2014, and by Sept. 30 it had generated $21 million.

After the rating cut the city’s borrowing cost relative to AAA rated debt widened by about 25 percent, though it has shrunk some since then.

“The policies and practices they’ve put in place justify the AA- rating,” said Oscar Padilla, an analyst with S&P.

Meanwhile the city is gearing up a capital plan, in part to use some of the proceeds from the sales tax, said Yarber’s spokeswoman Sheila Byrd. The city, which had a $308 million budget in fiscal 2015, needs an estimated $750 million to $1 billion of infrastructure repairs. The city is working getting new business to locate in Jackson, including a 250-bed Westin hotel in downtown breaking ground in June and a proposed convention-center hotel.

“They need substantial capital investment over the next 15 years,” said Roger Brown, senior analyst with Moody’s, in a phone interview.

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