The city of Jacksonville and its JEA utility are both taking a hit from Moody’s as the credit giant downgrades the worth of bonds issued by them.
The downgrade was triggered by JEA’s lawsuit in an attempt to get out of its deal to partially fund the expansion of the Vogtle nuclear power plant in Georgia. That project is billions of dollars over budget.
Moody’s has dropped JEA’s rating from AA2 to A2. Moody’s said JEA’s credit outlook has been revised from stable to negative.
That in turn has also pulled down the city of Jacksonville’s rating.
“The downgrade of JEA's water and sewer debt reflects our concurrent downgrade of the city of Jacksonville's issuer rating, non-ad and special tax ratings,” Moody’s wrote.
Our Florida Times-Union news partner reports a recent estimate for the nuclear project’s costs so far is around $27 billion. JEA could pay $2.5 billion or more of that. The plant was once priced around $14 billion, according to the newspaper.
Jacksonville’s Chief Administrative Officer is “strongly rejecting” Moody’s assessment, he said in an email to WJCT News.
“JEA customers are currently paying for this skyrocketing, out-of-control nuclear power plant project with no certainty in cost or completion timeline. This downgrade action is based upon wild speculation, completely without rationale or merit,” CAO Sam Mousa wrote.
Mousa went on to write that Moody’s “refused to acknowledge the city’s clearly stated (and historically demonstrated) commitment to make debt payments. The city cannot sit idly by while others make decisions that have significant consequences for our citizens without exploring all of our options.”
Moody’s does acknowledge that JEA continues to make payments in full and on time for amounts billed by MEAG Power under the agreement and “intends to do so unless and until a court invalidates the (agreement).”
The credit agency concluded the negative outlook given to JEA “reflects the uncertainty surrounding the disposition of the city’s litigation during the outlook period.”
Moody’s said future ratings will depend on the following:
Factors That Could Lead To An Upgrade
- Withdrawal by the city and JEA from the lawsuit against MEAG requesting the termination of the take-or-pay contract.
- Improved debt service coverage and liquidity.
- Sustained customer and usage growth.
Factors That Could Lead To A Downgrade
- Continuation of JEA-MEAG lawsuit and decisions by the court favorable to termination of the contract.
- Weakened debt service coverage and liquidity.
- Material leveraging with additional debt.
The bottom line for taxpayers is that the lower rating could result in higher costs to pay off city and utility debt, just as a higher credit card interest rate can make a consumer’s monthly debt payment higher.
Mousa argues that Jacksonville’s finances have been strengthening in recent years. He points out Jacksonville has never failed to make a debt service payment.
Jacksonville has “dramatically increased reserve balances from $177 million in fiscal 2015 to approximately $270 million in fiscal year 2018,” Mousa said.
He concluded by writing, “The Jacksonville economy is thriving, with record low unemployment, a consistently growing population, and an expanding and diversified tax base.”