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Moody's cites Manchester tax cap in downgrade of bond rating

New Hampshire Union Leader

August 06. 2013 11:06PM

MANCHESTER — The aldermen on Tuesday expressed concerns about the city's recent credit downgrade, while some argued that the tax cap was wrongly cited as a factor in the negative report.

The credit rating agency Moody's Investors Service downgraded the city's bond rating one notch, from Aa1, which is the company's second-highest grade, to Aa2. The city schools' revenue bonds went from Aa1 to Aa3, which affects $77.3 million in current debt.

Mayor Ted Gatsas has downplayed the impact of the downgrade, suggesting that it wasn't even a "bump in the road."

City Finance Director Bill Sanders agreed that the downgrade wouldn't have a major impact on the city, and he noted that Moody's also upgraded Manchester's outlook from negative to stable.

"That somewhat offset the downgrade," he said at Tuesday's Board of Mayor and Aldermen meeting.

Still, Sanders and other aldermen said the downgrade report did raise some serious concerns, particularly about the poor performance of the city's park enterprises: the Derryfield golf course and its two ice rinks.

Moody's is "concerned about cities spending precious resources on nonessential services. They're sure we won't be able to pay back the $6 million," Sanders said, referring to the debt owed on the Recreation Fund.

The agency wrongly included the McIntyre Ski Area within the Recreation Fund. Its operation was taken over three years ago by a ski school.

Alderman-At-Large Dan O'Neil called the decision to run the facilities as enterprise funds "failed from day one."

"This has nothing to do with the parks people, but it was a financing scam," he said. "We need to figure out how to clear the debt. It shows up in the external audit every year — and now it's showing up in our rating."

Moody's singled out the city's tax cap in its report, stating, "Current and future revenue growth (is) limited due to the city's local property tax cap, which limits the property tax levy increase to the three-year average of the consumer price index."

Alderman-At-Large Joe Kelly Levasseur said the report was off-base in referencing the tax cap, noting it restrained spending. "I think the tax cap is the best thing that ever happened to this city," he said.

Levasseur called on Gatsas to write a letter challenging the report, including its reference to the McIntyre Ski Area.

Gatsas said he didn't want to write a letter that could be misconstrued.

"I would rather be triple-A plus," Gatsas said. "But I think we'll have opportunity on the next round, and we can straighten them out on McIntyre. They can see the municipal complex."

But Ward 1 Alderman Joyce Craig said the tax cap was relevant to the downgrade. In response to her question, Sanders confirmed that Concord and Portsmouth, cities without tax caps, had the highest credit ratings in New Hampshire.

Levasseur then posed the question, "Does Detroit have a tax cap?"

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