HATTIESBURG, MS (WDAM) - Hattiesburg's ability to borrow money has been thrown into question.
Moody's gives cities bond credit ratings, which are basically like a personal credit score.
"That is information that is out there for investors and gives them a good indicator of how sound the investment is," said Sharon Waits, chief financial officer for the city of Hattiesburg. "Moody's is basically an indicator of the financial health of the city."
As of November 2016, it stopped rating Hattiesburg, and council members say they just found out about this a couple of days ago.
"Did not know that our rating had been withdrawn," said Kim Bradley, Ward 1 councilman. "I found out from a lending institution here in town."
Waits said she didn't know how typical it was for a city to not have a bond rating, but said, as far as she knew, the city has always had one. However, she said she isn't concerned.
"It really doesn't mean a whole lot at the moment," Waits said. "When Moody's becomes important or any other ratings agency becomes important is when we're trying to issue debt or issue bonds. Right now, we're not doing that."
Bradley was less optimistic.
"One of our cash flow issues is during the summer," he said. "We have sales tax. We've collected some ad valorem tax, mainly in the early part of the year. There are times of the year where we have cash flow issues, and we have since I've been on the council borrowed short term money to get us through a slow cash period. Hopefully that doesn't happen this summer. Let's say there was a project that we needed to do, and we needed bonded money to do it. We would not be able to do that."
G.W. Kelly, chair of Finance, Real Estate and Business Law at The University of Southern Mississippi, said a lot of entities want to keep a continuous rating for bragging rights or to show they've improved their credit worthiness, but said some cities don't borrow money frequently enough to need one. Therefore, he said the loss of a rating isn't inherently good or bad.
"If we have plenty of tax collections, if we have lots of sources of revenue, that we can fund everything we need to fund as a municipality, well, who cares?" he said. "But at the same time, even if you don't want to borrow money, if you're not looking to finance a house or a car or something, you probably are well advised to keep your credit score healthy. In the case of disasters, I mean, we're subject to hurricanes and tornadoes and such. If that destroys infrastructure, well, there's federal funding and state funding for the emergencies, but then the bigger funding, long term issues, if we had to reroute roads because of some changes we had to make because of something like that, you probably have to do that with a bond issue. So there's certainly a reason to keep a credit rating, but it's not mandatory that you have one. I would say, a certain amount of prudence would say that you'd want one."
Bradley said, "If the city had a need for money today, and we need to go do business, whether it was with the Development Authority or whether it was through a local bank, we would not be able to borrow that money simply because we do not have a record showing where we stand."
Hattiesburg is two years behind on financial audits, and without the 2015 or a more up-to-date audit completed, Moody's won't issue a rating.
"At the moment, we are still waiting on the completion of our 2015 audited financial statements," Waits said. "Hopefully that audit will be completed soon, and Moody's has told us that once we have that information available to them that they will reinstate our rating or will again issue a rating for us."
Kelly said, "In a municipal debt issue, yes, if you don't have an audit, there is no chance that you will get a rating from any of the agencies."
When asked why receiving a completed audit was taking so long, Waits said the city doesn't control how quickly the firm works.
"They've run into some issues in their procedures and their processes that have slowed things down," Waits said. "It's been a slow process. We did transition to a new audit firm for our 2014 audit, and it has been a slow process for them to become fully acquainted with the city's history and with our financial statements and our processes and procedures. It's taking longer than normal."
Bradley said, "Here we are almost two full years later, and we still don't have that audit. It's clearly tied to a lack of information or failure of the city to provide the information to the auditing firm to complete it. The sad part is I understand we're a couple of months away from even being possibly through with this audit, getting the information they need, so we can get the audit completed. Companies and municipalities, governments do this every year. Why is this such a big deal? Why is the council just finding out about this two days ago? Something has fallen through the cracks, and it's wrong."
Kelly said the city could probably still borrow money if it needed to, but at a much higher interest rate.
"If they want to borrow money, they're probably going to go out and get an audit in order to restore that set of information for the agencies because the agencies are seen to represent the interests of the public, the lending public, the purchasers of those bonds," Kelly said. "If you don't do that, the best thing you can hope for, likely, is very high rates because you're an unknown, just as an individual without a credit score. Who will you borrow from, and how will you make that arrangement to pay? Well, it's going to cost you."
Waits said without any major projects on the horizon, there is time for the city to receive completed audit before it would need a rating.
"I'm not worried about it at all," she said.