Fairfax County officials on Tuesday approved $256.3 million in bonds to pay for a new elementary school and other improvements, setting up a crucial review of the cash-strapped county’s fiscal health.
Ratings agencies in New York will grade the bonds before they’re issued in February, a routine exercise that in the past has resulted in bargain interest rates on county debt.
But amid a still-weak economy that has led to a projected $179 million budget gap over the next two years, county officials are worried they’ll see a downgrade from the triple-A ratings that have been granted to Fairfax since the 1970s.
The Moody’s ratings house in January attached a “negative outlook” to Fairfax’s general obligation bonds, which are used to pay for schools, roads and other infrastructure improvements. Moody’s cited Fairfax’s underfunded pension systems and emergency budget reserves, which are comparatively lower than those kept by other governments with triple-A bond ratings.
Officials estimate that the county has saved about $662 million in debt payments since 1978 because of its triple-A ratings, which most recently led to an interest rate of 2.84 percent.
A rate hike would mean an increase in the county’s annual debt payments, adding to the challenge of funding schools and other services without raising taxes or severely cutting programs. County officials plan to meet with representatives of the three bond-ratings agencies next month to try to convince them that the county is fiscally strong.
“Fairfax County is committed to doing what we need to do in order to keep those bond ratings high,” said Sharon Bulova (D), chairman of the County Board of Supervisors.
The county paid $160 million into its pension funds this year, compared with $90 million in 2010, an increase that officials said was mostly needed to make up for losses in pension-fund investments on Wall Street. But some county supervisors note that there are also more retired employees benefiting from the funds.
Fairfax budget reserves amount to about 12.5 percent of the county’s general fund balance of $3.6 billion, lower than Montgomery County’s 17.1 percent, Loudoun County’s 19.3 percent and Arlington County’s 18.5 percent, according to a presentation by Fairfax officials late last month .
The disparity has fueled concerns about Fairfax, particularly in light of a local economy still reeling from the effects of federal sequestration cuts, said David Jacobson, a Moody’s spokesman.
Analysts from the other two ratings houses have privately shared similar views, county officials said, stoking worries about a potential downgrade.
“It’s absolutely critical we maintain our triple-A” ratings, said Supervisor Pat Herrity (R-Springfield), who is pushing for a 401 (k) retirement system for new employees that would require them to contribute to their accounts.
The county is adding $9 million per year to its three pension funds, which cover general employees, police officers and other uniformed personnel and are 80 percent funded. Officials hope to increase that level to 90 percent, which ratings agencies consider sound.
The county is also exploring ways to beef up Fairfax’s budget reserves, said Susan Datta, Fairfax County’s chief financial officer. She said it’s important to demonstrate to the ratings agencies that the emergency funds are in abundance if they’re ever needed.
“This is one area that our board is going to need to address,” Datta said.
Bulova said the fiscal concerns add to a “stew of challenges” brought on by the county budget gap, pressing schools needs, pleas from county employees for pay raises and less state and federal funding.
“That sure makes it hard,” she said.