In a scathing credit opinion, issued days before Mayor Sandra Bury presented a “rosy” picture of the village’s finances in the State of The Village Address, Moody’s Investor Service once again downgraded the village’s credit rating.
The credit opinion, which was obtained by the Oak Lawn Leaf, states that the rating is reduced from A2 to Baa on Oak Lawn’s outstanding general obligation unlimited tax debt of $61.6 million.
Moody’s Investors Service has downgraded to Baa1 from A2 the rating on Oak Lawn, IL’s outstanding general obligation unlimited tax (GOULT) debt. The reduction is the third consecutive decrease in the credit agency’s rating since Mayor Sandra Bury took office in 2013.
In August of 2013, Moody’s reduced the village’s rating from Aa3 to A1. Less than one year later, in June of 2014, the agency downgraded from A1 to A2. This latest rating skips another level down to only two steps away from “junk bond status”, meaning any bond issues would not be available.
The lower a village’s credit rating, the higher the interest that it must pay on any loans or bond issues. In some cases, it can also cause financial default on current debt and increases in taxes to pay off the debt.
The report is filled with criticisms of the administrations management of financial issues including the following:
The village’s long-term debt profile consists of $61.6 million of outstanding GOULT bonds and a $19.4 million variable rate bank promissory note. The bank note matures with a balloon payment in August 2017. The village is exploring its options to refinance the note prior to maturity. The interest rate on the note resets monthly to LIBOR + 1.25%. A downgrade below Baa1, or its equivalent with another agency, is considered an event of default under the note agreement. This would expose the village to having to immediately repay the note, for which it currently does not maintain sufficient liquidity.
The report was issued five days before the February 14, 2017 Village Board Meeting although sources within the industry confirmed that the village administration was aware of the report’s findings in December and had an opportunity to provide evidence in an attempt to reverse the downgrade decision. Ultimately, the village’s administration was unable to do so.
One of the main criticisms leveled in the report against Mayor Sandra Bury’s administration, is its failure to fund the pensions properly or provide a plan for future funding. Early in the Bury administration, Trustee Robert Streit requested that the village investigate the possibility of issuing bonds to pay off the outstanding pension debt. If the village had done so at the time, it would have reaped millions in savings.
However, according to two sources with knowledge of the public finance industry, the option to refinance that pension debt is now no longer available to the Village of Oak Lawn. The downgrading of the village’s credit rating would now make the bond issue much more costly since the interest on the issue would increase the costs. One adviser, who has worked for many neighboring villages, said the option was “viable” when the credit rating was higher but “risky” at this new rating.
Despite the credit rating agency’s criticism of the Bury administration’s handling of pension payments, Bury sent out a political email just the other day claiming that pensions were being paid down. She stated in the literature, “We have adopted an aggressive plan to pay down debt, maintain our infrastructure and meet our pension obligations.”
However Moody’s disagrees and in its report stated that the village’s payment to the police and fire pensions was “$10.7 million short of the amount needed for both plans to tread water….payments planned in 2017, as well as over the next few years, will continue to fall short of the amount needed to tread water.” Moody’s also stated, “…village contributions that were far from sufficient to cover interest accruing annually on unfunded liabilities.”
The public has not been provided any hint of the financial instability of the village. In fact, the report has never been provided to the full Board of Trustees, the media, or the public. On February 14th, five days after the report was published by Moody’s Mayor Sandra Bury spoke favorably of the village’s finances. Trustee Terry Vorderer attended the speech and told the public that Bury painted a “rosy” picture of the village in the State of the Village Address. Vorderer, who is running with Bury, praised the Mayor’s presentation.
Even two weeks later on February 28th, no village officials had spoken about the report publicly. A Village Board meeting is scheduled for tonight. Trustee Robert Streit, who is running against Bury, confirmed to the Oak Lawn Leaf that the Village Administration has not shared the document with him since its publication. He said that he became aware of its contents after speaking with the Oak Lawn Leaf.
“The document contains a great deal of distressing information and exposes many of the lies that have been told about the village’s financial stability for the last four years,” said Streit.