Since the mid-1970s, Fairfax County has prided itself on its vigilant fiscal management, earning a reputation that has consistently delivered top bond ratings from major ratings houses in New York.
But on Wednesday, a lingering worry over an anemic economy and the effects of the federal sequestration manifested itself when Moody’s attached a “negative outlook” to another Aaa rating on $305 million in general obligation bonds up for sale next week.
Citing rising pension costs in the county and regional effects brought on by federal budget cuts, Moody’s said that Fairfax has lower reserves than what are normally seen in Aaa-rated entities and that the county “will remain challenged going forward as management addresses upcoming budget gaps after reducing expenditures.”
That brought on a vehement reaction from county officials, who face a projected $25 million budget shortfall during the next fiscal year.
The negative-outlook designation probably means a higher interest rate on the debt payments for the new bonds.
In a statement, Sharon Bulova (D), chairman of the Board of Supervisors, called the designation by Moody’s “unfortunate and unfair.”
“This designation is based on Moody’s overemphasis on reserves and a change in their ratings criteria and does not indicate deterioration of Fairfax County’s fiscal management,” Bulova said in the statement.
“When our board begins work on the FY2015 budget, I am confident my colleagues on the Board of Supervisors as well as the School Board will continue to be the responsible fiscal stewards that allowed us to maintain triple-A ratings from all three ratings agencies through the largest global financial crisis of our lives,” the statement said, referring to the county’s ability to remain fiscally sound through the recession that began in 2008.
The bonds to be issued next week are part of a capital improvement program that is meant to fund county schools, public safety, transportation and improvements connected to Metro train service, county officials said. Some of that money will refinance debt incurred under previous bond issues, county officials said.
The county criticized Moody’s, saying the ratings house ignored the fact that Fairfax has weathered several financial storms in recent years, adhering to a set of principles for sound financial management adopted years ago.
“Fairfax County has a strong history of taking decisive actions to meet its financial obligations,” the county said in a separate statement. “It has weathered projected deficits, taken programmatic reductions and eliminated positions to ensure its financial strength. It is disappointing that Moody’s did not recognize the totality of the factors which make Fairfax County’s credit strong.”
Moody’s said the county of about 1.2 million residents faces mounting financial pressures.
“While future tax base growth is expected to help offset these projected budget gaps, further budgetary pressures are likely to result from additional pension costs as the county increases its funding to meet the annual required contribution, which was underfunded by $48.3 million in fiscal 2013,” the ratings house said in its report.
The other rating agencies — Standard & Poor’s and Fitch — issued a “stable outlook” in reaffirming top ratings for the Fairfax bonds.