Alabama Lawmakers’ Inaction Merits Downgrade, Fabian Says
The Alabama Legislature’s failure to pass a measure to assist bankrupt Jefferson County means the state’s credit rating should be cut, said Matt Fabian, a managing director of Municipal Market Advisors.
Lawmakers’ inaction shows “a culture of unwillingness to pay,” Fabian said today in a telephone interview. “If trouble were to occur elsewhere with other bonds, even those sold by the state, it’s really not clear that the Legislature or the governor would do the right thing by bondholders.”
The Legislature’s annual session ended on May 16 without House action on a bill to help close a budget shortfall facing Jefferson County, which six months ago filed a $4.2 billion municipal bankruptcy, the biggest in the U.S. Governor Robert Bentley, 69, stayed out of the public debate on a measure to allow the county to raise taxes.
The county of 660,000 has already missed a $15 million general-obligation bond payment and said it will miss another in October.
“If the rating agencies say they include willingness as a factor in their ratings, they have to include what happened last week,” said Fabian, whose firm is based in Concord, Massachusetts. “If you ignore that, you’re really ignoring willingness.”
Asked about Fabian’s comments, Jeremy King, a spokesman for Bentley, pointed to an earlier statement from the governor’s office.
“The Jefferson County situation is unique in its underlying causes, and we do not believe those factors should reflect on other locations in the state,” King said in the statement, issued in March. “The state of Alabama maintains strong credit ratings and a conservative balance sheet.”
Moody’s Investors Service rates the state Aa1, the second-highest investment grade. Standard & Poor’s grades the debt AA, third-highest, and Fitch Ratings has the securities at AA+, its second-highest level. The state hasn’t sold general-obligation bonds since May 2010, according to data compiled by Bloomberg.
“Our rating reflects the ability and willingness of the state government to meet its own obligations, and not the obligations of any underlying municipalities,” said Horacio Aldrete, an analyst of the state at S&P. “Any action that the Legislature has taken with respect to Jefferson County is not material as to the state’s ability to meet its own obligations.”
David Jacobson, a Moody’s spokesman, declined to comment. Elizabeth Fogerty, a Fitch spokeswoman, said she was looking into the matter.
Alabama’s municipalities are already paying interest rates 0.25 percentage point higher because of Jefferson County’s Chapter 9 filing, according to Tom Barnett, finance director of Birmingham, the county seat.
For a 30-year issue of $16 million paying a 3 percent coupon, a 0.25 percentage point increase would require an extra $792,500 in debt service, according to data compiled by Bloomberg.
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