Fitch Ratings has downgraded several of Jacksonville’s bonds, citing pension risk and lack of reform as key drivers to its negative changes.
In all, about $1 billion in bonds and commercial paper notes were downgraded. Three bonds went from AA+ to AA, while one bond and the city’s commercial paper went from AA to AA-.
Regarding the city’s unlimited tax general obligation, its pension and liability profile is more consistent with an AA rating as opposed to an AA+ rating, the agency explains in its notes. Ratings affect the city's interest rates on borrowing.
“The rating action focuses on credit risk associated with the city’s pension plans, which have a large collective unfunded actuarial accrued liability and rapidly escalating funding costs,” it states.
The city’s police and fire pension plan’s unfunded liability is more than $1.6 billion. The annual cost of paying into the plan is a projected $154 million for fiscal year 2014-15, up $6 million from the year before.
In other notes, Fitch said pension reform has been “very slow to evolve.” It also is “unclear” when the deal on the table will be voted on and it specifically points out the lack of a definitive funding source for the additional $40 million pitched to help pay down the unfunded liability sooner.
Specifically, it has a headline for “The $40 million question” when discussing the city’s credit profile.
It does reference the special City Council meeting last week that was the first opportunity for the group to ask questions on the deal forged by Mayor Alvin Brown and Police and Fire Pension Fund administrator John Keane.
If that deal is changed by council members, it raises questions as to when, or if, a vote on the new agreement will happen, Fitch said.