A global financial ratings agency has downgraded the $213 million in pension obligation bonds Kern County issued in 2003 to prop up its employees’ retirement system.
Citing ongoing monthly losses at Kern Medical Center, Fitch Ratings dropped the county’s bond rating from “A+” to “A,” according to press release this week from the agency. It also dropped the county’s general obligation rating from “AA-” to “A+”.
Such a rating shift can make it more difficult for the county to borrow short-term debt to cover its operational costs.
Kern County Administrative Officer John Nilon acknowledged the downgrade was troubling but said the county is commited to handling its financial challenges.
In September, Fitch had put Kern County on a negative rating watch after KMC leaders announced that $64 million in revenue the hospital had entered in its financial books since 2005 was, in fact, not coming and might need to be paid back to the state and federal government.
In recent weeks, the Kern County Board of Supervisors has received troubling updates about $3 million in ongoing monthly losses at KMC and learned about the $27 million annual impact of funding a new inmate housing wing at Lerdo Jail. Plus, it has been told of the potential for pension costs to climb and grappled with regional freeway projects expected to drain millions from county coffers.
Heads of Kern County’s more than 40 departments have been directed to prepare their budget plans with cutbacks of between 5 percent and 11 percent.
Despite this, Fitch set the county’s new ratings as “stable,” noting that while the county faces significant financial challenges, revenues from the oil and gas industry have been strong. Additionally, the county maintains a conservative fiscal stance and has more than $200 million in reserves on hand to deal with short-term fiscal problems.
Kern County records its available reserves at $88 million because around $100 million is tied up in the operational loan to KMC.
Chief Deputy County Administrative Officer Elsa Martinez said the ratings shift can “spook” investors and the county will have to assure them the budget is stable and Kern County is a safe bet.
“Is it going take a little bit more to sell them? Absolutely,” Martinez said.
Her boss, Assistant County Administrator for Budget and Finance Nancy Lawson, said the county is taking quick action to handle financial challenges, and the decision by Fitch to switch the new “A” rating to “stable” status reflects that fact.
Nilon said the county will now focus on addressing its challenges and plan for the future.
The county wants to be in control of its financial life in three years, he said, and supervisors have committed to a budget retreat aimed at setting a course forward.
“We have some things on the horizon that are going to cost money,” Nilon said.
But he said with new KMC CEO Russell Judd hunting for solutions at the county-owned hospital and serious belt-tightening the county should be able to stay on firm financial ground.
“We do a really good job of fiscally conservative here,” he said.
Michael Turnipseed of the Kern County Taxpayers’ Association said the county is at a financial crossroads.
“They have some big, big mountains to climb but they’re in a better condition to handle it than other” local governments Turnipseed said. “They’re going to have to make some serious decisions this coming year.”