Phoenix Water’s Credit Rating Faces Risk Following City Council’s Rejection of Increased Rates
American credit rating agency, Moody’s, has cautioned that Phoenix’s inability to increase water rates as part of plans to revamp infrastructure which is in a bad state, could hurt its first-rate FICO assessment of the city’s water utility. In order to maintain good credit ratings, it is imperative for a city like Phoenix to invest in infrastructural projects.
In a 5-3 vote on December 12, the city council rejected two proposals regarding rate increments of 6 percent in 2019 and 2020, despite the fact that in October it had announced an intent to raise rates.
Moody’s asserted that the reluctance to raise utility rates would affect Phoenix’s credit rating.
Phoenix’s water utility has a FICO assessment of “Aa2 stable” — only two rankings underneath AAA — on account of its “huge and stable service territory with abundant water supply and treatment limit,” Moody’s feeling said. S&P gives the utility a AAA security rating; Fitch does not rate it.
Julie Watters, a representative for the city, said that the city council would again take up the issue of the proposed rate increment on January 9.
The Water Services Department states that it requires extra funds and infrastructure for two reasons. Initially, a scarcity on the Colorado River would be proclaimed by 2020. If that becomes successful, Arizona will face cutdown of around 18 percent to its allocation of water, and Phoenix would have to begin looking for better alternatives to retrieve the required amount of water.
The second reason is maturing infrastructure. The water utility has worked for a long time. A portion of its funnels is exceptionally old.
Commenting on how the council agreed on two 6 percent increases, Denise Olson, the city’s chief financial officer said, “We have some monetary markers that we have to continue to keep an AAA rating,” Olson said.
That rating helped them obtain cash at a low rate, she said. In the wake of taking a gander at capital needs, the city “sponsored into 6 percent.”
Moody’s assessment pointed out three factors that could prompt it to downgrade the utility’s credit rating— a pattern of breaking down obligation benefit inclusion, a pattern of declining liquidity, and a continuous dry spell that would make water progressively costly.
The City Council last endorsed water rate increments in January 2016, prompting climbs of 3 percent in March 2016 and 2 percent in March 2017.
Kathy Ferris, a former executive of the Arizona Department of Water Resources, said that at the time when the past increments were proposed, there wasn’t any discussion that this would be the last increment for infrastructure.
Ferris stated that three years back the circumstances were different from the present times. Therefore, it is now high time that the city staff is proactive and makes sure that the city’s water goes to the correct channels.