05.02.14

Negative Odds. Fitch Ratings yesterday affirmed a junk rating and negative outlook on $422 million in North Las Vegas, Nevada bonds based on a tentative budget and indications that a state takeover appears unlikely in the near term—notwithstanding the deferral of any state receivership in the wake of the release by the city of its FY2015 budget—a deadline to prevent a state takeover in Nevada—a state which does not provide its municipalities with authority to file for federal bankruptcy protection—even though Nevada rose to tops in the nation with 11.23 bankruptcy filings per 1,000 residents in 2009 and remained number one last year with 11.1 filings per 1,000 residents, according to CreditCards.com. State law bars Nevada municipalities from filing for bankruptcy, but allows for the state to become the receiver. The Nevada Tax Commission could also eventually ask voters to approve disincorporation. Current statute requires that taxes for bond repayment continue to be levied under disincorporation. Nevertheless, Fitch noted, positively, the city’s tentative settlement agreements reached last month with all four city unions, totaling $7.7 million—or the equivalent of what Moody’s determined to be 31 cents on the dollar. The City Council is scheduled to consider the union settlement next week—and then adopt its budget on May 20th, on order to submit its budget to the state by June 2nd. The critical issue for the city is its 52 percent decline in assessed property values over the last four years—so that its fixed costs, or its trend gap appears to be increasingly untenable. As Fitch noted: North Las Vegas’ municipal debt is high relative to its tax base; amortization is slow; and debt service is inclining in the intermediate term…The city’s seven-year forecast released in January indicates a large and growing structural deficit with negative general fund balances increasing to $142 million by fiscal 2021 (87.8% of that year’s forecasted spending) assuming only small revenue increases as well as annual $32 million transfers from the utility fund.. The city’s bonds are secured by the full faith and credit of the city, subject to Nevada’s constitutional and statutory limitations on the aggregate amount of ad valorem property taxes. Additional security is provided to $131 million of the bonds by an irrevocable pledge of and lien on certain consolidated tax revenues (15% of these revenues) and to $290.7 million of the bonds by pledged water/wastewater system net revenues: “The city continues to face a sizeable and increasing budgetary imbalance with no significant prospects for revenue recovery, constrained expenditure flexibility following steep cuts in prior years, and ongoing cost pressures. It must also address a mandated reduction in subsidies from its utility funds…The city and region’s economy were among the hardest hit in the U.S. by the collapse of the housing market, resulting in a combined taxable assessed valuation (TAV) decline in the city of 52% over the last four years. The regional economy is dominated by tourism and gaming which experienced significant revenue and employment declines but appear to be stabilizing.

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