Back on June 8, 2011, we published a post in which we referred to Mayor Dave Schmidt as “Mayor No” for his efforts to rein in irresponsible spending and restore fiscal integrity to a City government that had posted three straight years of deficits totaling approximately $6 million.

Schmidt caught plenty of flak from his critics, especially the special interests who didn’t much cotton to the notion that the City trough might be drying up.   But despite the first mayoral vetoes in memory, if not all of Park Ridge history, the aldermen of the previous Council – Joe Sweeney, Rich DiPietro, Don Bach, Jim Allegretti, Robert Ryan, Tom Carey and Frank Wsol – didn’t seem to comprehend the importance or the urgency of the City’s getting its financial house in order.

Instead, they raised taxes approx. 3.5% per year while keeping the spending spigot open.

They approved pay raises for City employees for no apparent reason other than it seemed like a good idea at the time, and/or other communities were doing it.  They threw arbitrary gobs of money – totaling hundreds of thousands of dollars a year – at private corporations (a/k/a “community groups”) who provided no transparency or accountability to the City for the money they received.  And they fattened the bankroll of Taste of Park Ridge’s private corporate operator, Taste of Park Ridge NFP (“Taste Inc.”), with more than $20,000/year of free City services, even as it became obvious Taste Inc. lied about being a not-for-profit when it was decidedly for-profit and pocketing undisclosed amounts of cash.

The new Council, unfortunately, has proved to be only marginally better so far.  Five of those aldermen have been in office a scant 9 months, however, so it’s still a bit early to lump them in with their predecessors.

But Schmidt’s uncompromising persistence had some positive effect: even those few vetoes which were sustained saved hundreds of thousands of dollars for the City – savings which manifested themselves in last year’s posting of an overall $2 million surplus, including (most importantly) a $35,000 surplus in the General Fund, the City’s operating fund where the fiscal rubber meets the road.

As we see it, kudos for that achievement go in no small part to new (in FY2010-11) Finance Director Allison Stutts, who not only brought an unprecedented level of professionalism to that office but also began conducting an aggressive review and analysis of the City’s financial operations.  The most notable result of those efforts was the discovery that the City was sitting on over $600,000 in uncollected fees and fines.

But it’s way too early to declare fiscal victory, especially if it such a declaration would encourage the return to the tax, borrow and spend ways that Schmidt had been battling alone since becoming mayor in May 2009.  Now, however, he seems to have an able ally in new Council Finance and Budget Committee Chairman, Ald. Dan Knight (5th); and they both benefit from Stutts’ finger on the financial pulse of City Hall. 

Stutts just presented the City Council with preliminary budget documents to initiate the 2012-13 budget process, which began with a meeting last night.  Those documents show a projected $37,000 deficit in the General Fund for FY2011-12, ending April 30.  With a little luck, the heretofore mild and snow-less winter might account for enough salt and manpower savings that, by itself, will more than cover that deficit. 

But there’s still a lot of winter ahead of us, starting with today’s expected snowstorm.  And there are still a lot of financial landmines that need continuing avoidance.

Much more troubling than that $37,000 projected deficit is the recent news that Moody’s just reduced the City’s bond rating one step – from Aa1 to Aa2, with a negative outlook.   The principal reasons given were all those past years of deficits in the General Fund, thanks in no small part to the multi-million dollar deficits rung up by the Uptown Redevelopment TIF Fund that the General Fund has had to cover. 

The practical effect of the downgrade is that any new City bond issues likely will need to offer investors a higher rate of interest, thereby diverting more tax dollars to debt service and away from essential services.  That doesn’t bode well for the taxpayers, especially given the big-ticket infrastructure projects like sewer repair and flood relief already in the planning stages.  That higher debt service could also make the City more vulnerable to deficits, layoffs, service reductions and further ratings downgrades – which, in turn, will increase pressure for more tax increases.

Can you say “spiraling problems”?

It should be noted that Schmidt was calling for spending cuts to bolster the weakened General Fund long before this unpleasant rating news broke.  The City Council, former and current, substantially disregarded those calls.  

Let’s see if they listen to Moody’s blues.

Update:  The following is the Moody’s opinion concerning the City’s bond rating downgrade.  For those of you who think this is all just a joke, note that the only two “Strengths” Moody’s identifies implicate the City’s ability to raise taxes because of its home-rule status and related exemption from tax caps.  Enjoy! 

OPINION

Moody’s Investors Service has downgraded to Aa2 from Aa1 the city of Park Ridge’s (IL) general obligation unlimited tax debt and assigned a negative outlook. Concurrently, Moody’s assigns a Aa2 rating and negative outlook to the city’s $5.4 million General Obligation Bonds, Series 2012A and $2.1 million General Obligation Bonds, Taxable Series 2012B.The Aa2 rating and negative outlook apply to $45.6 million of outstanding GO debt, including the current offering.

SUMMARY RATING RATIONALE

Secured by the city’s general obligation unlimited tax pledge, the Series 2012A bonds will finance capital improvements to the city’s sewer system as part of a larger capital improvement plan to reduce flooding. The Series 2012B bonds will fund the outstanding liability of the city’s Early Retirement Incentive program, as well as pay the city’s underfunded balance with the Illinois Municipal Retirement Fund. The downgrade to the Aa2 rating reflects the deteriorating health of the city’s General Fund, coupled with substantial General Fund support for other funds; large and mature suburban tax base with above average income levels; and a modest debt profile with an above-average repayment schedule. The negative outlook reflects the risks associated with the weakened liquidity position in the General Fund and the negative fund balances in the Uptown tax increment financing district (TIF) and Emergency Telephone Fund that require annual operating support from the General Fund.

STRENGTHS

– Large tax base with above average income indices advantageously located near Chicago border and O’Hare Airport

– Financial flexibility provided by the city’s Home Rule status

CHALLENGES

-Consecutive operating deficits resulting in substantial draw on General Fund reserves

-Deficit position in two funds that require ongoing General Fund support

Outlook

The negative outlook reflects the risks associated with the weakened liquidity position in the General Fund and the negative fund balances in the Uptown TIF and Emergency Telephone Fund that require annual operating support from the General Fund.

WHAT COULD CHANGE THE RATING — UP (or removal of negative outlook)

-Improved reserve and liquidity levels in the General Fund, Uptown TIF Fund and Emergency Telephone Fund

-Reduction or elimination of General Fund support to other funds

WHAT COULD CHANGE THE RATING — DOWN

-Continued draws on General Fund reserves, resulting in levels not commensurate with the current rating level

-Ongoing or increasing General Fund support for the Uptown TIF or Emergency Telephone Fund

PRINCIPAL RATING METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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