North Las Vegas Risks Insolvency Like Detroit, Fitch SaysJames Nash
Fiscal pressures that pushed Harrisburg, Pennsylvania, Stockton, California, and Detroit into default are bearing down on North Las Vegas, Nevada, which is nearing insolvency, Fitch Ratings said.
The four cities all have suffered from “flawed” financial decisions, “rigid and escalating” cost structures, limits on raising revenue and weak local economies, Fitch said yesterday in a report.
Nevada’s fourth-largest city is working to avoid insolvency or a state takeover after it forecast a $24 million budget shortfall this year, driven by a 70 percent decrease in property-tax revenue since 2009. Fitch rates the city’s $420 million in general-obligation bonds B, its fifth-highest non-investment grade, with a negative outlook.
“North Las Vegas, while not in default, is nearing insolvency, and Fitch’s rating indicates that material default risk is present,” Matthew Riley, a Fitch director in San Francisco, said in a statement.
The finances were damaged by the severity of the recession coupled with multiyear contracted compensation increases. The city also faces a structural budget deficit, one-time expenses, and restrictions on certain revenue-raising measures.’’
Nevada law doesn’t allow municipalities to declare bankruptcy, distinguishing North Las Vegas from Detroit and Stockton, both of which are in bankruptcy court. Harrisburg’s 2011 bankruptcy petition was rejected by a judge, and the city, beset by losses on a trash incinerator, was placed under state receivership.
Nevada’s Taxation Department, which has been monitoring North Las Vegas for possible receivership, has accepted the city’s tentative 2014-15 budget, which anticipates a fund balance of $48.2 million in June 2015.
Tentative contracts between the city and two of its four unions -- Teamsters Local 14 and International Association of Firefighters Local 1607 -- don’t include raises, said Ryann Juden, chief of staff to Mayor John Lee. Juden noted that all four city unions agreed to back pay totaling $7.7 million as part of a settlement over contracted raises that the city had withheld, far less than the $60 million liability the city could have faced.
“Clearly, moving a $60 million liability for $7.7 million is a huge win for the city,” Juden said by e-mail.