Fitch changes Las Vegas debt rating outlook to ‘negative,’ but city officials say don’t panic

By Steve Green, Dave Toplikar

Monday, April 9, 2012 | 7:19 p.m.

One of the three big Wall Street debt-rating agencies is warning about continued budget shortfalls at the city of Las Vegas tied to economic problems and high costs for police services.

Fitch Ratings on Monday affirmed its current AA or “very high credit quality” ratings for $541.3 million in existing city debt but revised its outlook for future ratings to negative from stable.

Fitch’s assessment is unlikely to affect Las Vegas residents, at least in the short term.

That’s because city officials don’t expect the outlook change to boost the city’s borrowing costs, since competing debt raters Moody’s Investors Service and Standard & Poor’s have told the city they are maintaining their stable outlooks.

In announcing its new negative outlook Monday, Fitch cited problems for the city of some 584,000 people on the revenue and spending sides.

On the revenue side, Fitch said, “the city continues to experience a strong recessionary impact from multi-year declines in home prices and taxable assessed valuation” and remains “highly dependent upon economically sensitive tourism and gaming revenue.”

On the spending side, “The cost of police services, provided jointly with Clark County, has proven particularly difficult for the city to control, with no clear plan for addressing this growing expense,” Fitch said.

Still, Fitch credited the city for having sound financial reserves, conservative budgeting practices and strong management.

Its outlook revision is focused on city management’s projection of the gradual depletion of fund balances because of “deficit operations through 2016” in which reserves totaling $137 million, or 29 percent of general fund spending, would be reduced to 10 percent of spending.

The city is now working on budget plans for fiscal year 2013 in which revenue is projected to be down about 0.4 percent from the current $456.1 million budget.

City officials said Monday that spending for police services was expected to climb from $119.8 million this year to $122.2 million in fiscal 2013, and then tentatively rise to $132.8 million in the 2014 fiscal year.

Nevertheless, they said the 2013 and 2014 numbers weren’t set in stone — meaning Fitch’s announcement was based on budgets that have yet to be finalized.

“It is premature to assume how the budget forecast will play out,” Jace Radke, public information officer for the city, said.

Of the debt to be priced April 17, $7.5 million is for work to reopen F Street and should yield a favorable interest rate of about 3 percent, Radke said. Because of market conditions conducive for issuing municipal debt, the latest estimate is that the $7.5 million F Street note issuance is expected to grow to $8.1 million, Radke said.

Another $12.4 million in bonds will refinance existing debt, saving the city $990,000 in interest costs over the next 10 years, Radke said.