SAN FRANCISCO, July 25 (Reuters) - Fresno, the fifth largest city in California, could borrow $4 million from one of its utility funds to help fill a $12 million budget gap as talks with police officers are unlikely to produce savings, an official said on Wednesday.
The loan, which would be guaranteed by revenue from business license fees and needs the city council’s approval, could add to rating agencies’ concerns regarding Fresno’s finances.
Like other cities in California, Fresno has had lean revenues in recent years, forcing it to cut its payroll, impose furloughs, tap reserves and resort to other moves to shave costs in an effort to balance its books.
The weak public finances in Fresno have recently attracted the attention of rating agencies.
Moody’s Investors on Monday cut its rating on Fresno to A3 from A2, citing uncertainties in the city’s budget, including its reliance on difficult-to-obtain labor concessions and likely internal borrowing.
Earlier this month, Fitch Ratings also downgraded Fresno’s general obligation bond rating by a notch to A-minus.
Standard & Poor‘s, which in October lowered its issuer credit rating on Fresno to A from AA and its long-term rating and underlying rating to A-minus from AA-minus on the city’s lease revenue bonds, has a negative outlook on the city of about 500,000 residents in California’s Central Valley.
At the end of June, Fresno had an estimated $1.5 billion of outstanding long-term bond principal and interest, according to Mayor Ashley Swearengin’s proposed city budget. Total debt backed by the city’s fund is $738.9 million.
Like Moody’s and Fitch, S&P expected Fresno could borrow from its various funds to bolster its cash after having used up its reserves, said S&P director Misty Newland. “It’s definitely something that gives us concern.”
Assistant City Manager Renena Smith told Reuters there is little hope that more cost savings will come in the near term from a deal on pay concessions with the city’s police officers’ union.
As a result, her office is working on a plan for the city to borrow just over $4 million, likely from its sewage division, which has more than $80 million in cash.
The loan will help close Fresno’s deficit along with a boost in sales tax revenue, outsourcing garbage collection service and assorted cost reductions.
Fresno will reimburse it in 2015, the same year the city’s contract with its police officers’ union expires.
The plan for the loan will be presented to Fresno’s city council next month.
Moody’s has a negative outlook on Fresno that reflects limited prospects for improvement in the near-term for the city’s finances due to a weak local economy.
“The city’s depleted reserves limit its financial flexibility and ability to absorb additional budget pressures,” according to Moody‘s. (Reporting by Jim Christie, Editing by Tiziana Barghini and Gunna Dickson)