Fairfax County Disagrees With Moody’s Negative Bond Outlook

Fairfax County officials are not pleased that Moody’s designated the county a negative bond rating on Wednesday.

Moody’s said Fairfax County has a smaller reserve than what would earn an Aaa rating and that the county “will remain challenged going forward as management addresses upcoming budget gaps after reducing expenditures.”

The credit rating agency attached a “negative outlook” $305 million in general obligation bonds up for sale next week. The agency cited rising pension costs in the county and effects brought on by last year’s sequestration.

The negative outlook likely means a higher interest rate on the debt payments for the new bonds.

It also put the county on the defensive.

“Fairfax County disagrees with Moody’s assignment of the negative outlook as it ignores the County’s strong fiscal management and the strength of its tax base,” the county said in a statement. “The County has maintained its Triple A ratings through many economic cycles and changes. In assigning the negative outlook, Moody’s notes areas of concern including the County’s reserve balances and pension liability funding. The County anticipates this negative outlook will have no meaningful impact on the County’s upcoming General Obligation Bond sale.”

A county spokesman pointed out that “when Moody’s placed the Fairfax on negative outlook as a result of the indirect linkage with the Federal Government between August 2011 and July 2013, there was no appreciable impact.”

More from the county:

As part of its annual capital program, Fairfax County will sell General Obligation Bonds on Jan. 23 in the amount of $289.6 million primarily for schools ($155 million), public safety ($50 million), transportation and Washington Metropolitan Area Transit Authority (WMATA) ($59.5 million). The County’s Triple A Bond Rating was affirmed by all three bond rating agencies: Standard & Poor’s, Fitch Ratings and Moody’s Investors Service, which cited County strengths such as: strong and diverse economic base, above average wealth levels and a history of adherence to strong financial policies. In addition, Standard & Poor’s and Fitch reaffirmed the stable outlook for the County. …

The County has demonstrated strong financial flexibility through a combination of reserves, budgetary cuts and tax rate changes. The County believes Moody’s approach has overemphasized reserves as an indicator of financial flexibility in their analysis, and that the County’s existing reserve structure is adequate based on the various other forms of financial flexibility available to the County and the County’s conservative budgeting practices for both revenue and expenditures. Fairfax County has maintained full funding of its two General Fund reserves: 2 percent of General Fund Disbursements (the Managed Reserve) and 3 percent of General Fund Disbursements (the Revenue Stabilization Reserve) since Fiscal Year (FY) 2006.

Beyond these two reserves, the County has access to additional areas of financial flexibility that have proven to be effective during the recession, namely the willingness and ability to raise its Real Estate Property Tax Rate and make significant expenditure reductions. Additionally, there was and continues to be financial flexibility through available reserves that are accounted for outside the General Fund including replacement reserves for vehicles, public safety apparatus, technology equipment and potential losses associated with the County’s self-insurance programs.