City experiences unexpected delays in improvements

The City of Nevada is currently experiencing delays for previously-planned water system improvements. Earlier this year, the city’s bond credit rating was downgraded by Moody’s and a “negative outlook” was assigned. Moody’s, along with Standard & Poor, and Fitch Group, are considered the “Big Three” credit rating companies on which potential investors of debt securities rely.

According to City Manager JD Kehrman, the downgrade is the result of the current auditing company requiring the city to list the hospital as a component of the city - or listing hospital financials in the city financials. He said the city has not been required to do this in the past, and enjoyed a Moody’s rating of A3 prior to the downgrade.

Kehrman said the city’s finances have not changed. “While the ability to borrow has been hurt by the downgrade, the actual city finances are not affected. We continue to be exactly where we were when we were an A3. The city is in excellent financial health.” He went on to explain that a Baa2 rating is still investment grade and the assignment of a negative outlook is what hurt most.

A press release issued by Moody’s states that, “The negative outlook reflects the potential for the city’s credit profile to weaken if it were to provide any financial support to the hospital.”

Kehrman said that while the hospital is, indeed, a component of the city, it is completely autonomous. “It operates with its own board. There is no legal obligation, nor is there any historical practice, that the city would ever pledge its general revenue to the hospital debt. We could never do it.”

Also included in the press release are factors that could result in an upgrade, or removal of the negative outlook. There is only one listed: “Material improvement in hospital’s operating profile, liquidity and leverage profile.”

If the Citizens United to Strengthen Our Hospital ballot issue for a half-cent sales tax passes in August, that additional revenue, along with possible sole community provider status for NRMC, “might turn this whole thing around.”

For now, the city may go to the USDA for subsidy financing on the water improvements. “Now everything has to be done on a very specific timeline and with USDA’s blessing. The process hasn’t started, but they have been notified that the city is interested. We are just not really sure what the project looks like now under this funding.”

In order to use USDA loan proceeds the city would have obtain bonding authority from the citizens through a ballot measure, which Kehrman said would most likely have to wait until next spring. “It’s a tough sell. We didn’t have to do this before because with our credit rating we didn’t need to go through a subsidy; we could just get funding through private placement.”

Kehrman said the next step is to get an engineer and decide what can be done and in what order. “A lot of the stuff is going to be reimbursable. We can’t just run up a $600,000 price tag and then wait for reimbursement, so it’s just going to take longer.” City officials may also look into eligibility for grant funding.

The water project will be delayed at least a year, according to the city manager. “It really does complicate things for sure. It was a very unusual and unexpected turn of events.”