By Terry Oparka
C & G Staff Writer

TROY — The city’s bond rating and financial outlook took a hit after Fitch Ratings said the city’s financial flexibility was diminished due to voter approval of an amendment that requires tax increases to go before voters.

Fitch downgraded $11.3 million in outstanding limited tax bonds, which are paid through the city’s operating levy, from AAA to AA-plus. While Fitch affirmed the AAA rating for the city’s $31 million in outstanding unlimited bonds, which are not subject to property tax rates or levy limitations, the agency revised the rating outlook for both types of bonds from stable to negative.

The moves come, according to a prepared statement by Fitch Ratings, as a result of flat taxable values, projected cuts in state funding, a weak employment picture and diminished financial flexibility as a result of the voter approval of the tax charter amendment. According to the release, the city’s unemployment rate was 7 percent in September.

 “The downgrade of the LTGO (limited tax general obligation) bonds is based on Fitch’s belief that the city’s financial flexibility has been diminished, most recently by a Nov. 4 referendum approved by over 60 percent of voters that reduces the maximum authorized property tax rate to the current rate, thereby eliminating any margin by which the rate could be increased to pay LTGO debt service or operating expenses,” the statement reads.

More than 73 percent of Troy voters approved the tax charter amendment Nov. 4. 

Fitch goes on to say that the city’s “conservative fiscal management” has taken actions to reduce spending in the current year and has a policy of maintaining substantial general fund balances.

“Fitch’s belief that the city retains a considerable amount of flexibility in reducing expenditures, a favorable debt profile with well-funded pensions, and a strong policy of funding retiree health care benefits all continue to support the city’s high rating level. … Fitch expects the city will continue to make appropriate compensatory actions to maintain fiscal balance,” the statement reads.

Under the city charter, before the amendment, Troy could increase the city millage rate from the current 8.1 mills up to 8.5076 mills without voter approval. The total millage rate of 9.28 includes 0.68 mill for refuse collection and 0.05 mill for debt millage.

John Lamerato, assistant city manager, finance and administration, said there is some concern about the current rankings. The city will not issue any limited tax bonds, which would require insurance, he said. He added that the loss of the AAA bond rating takes away financial flexibility. The other bond rating agencies, Standard & Poor’s and Moody’s Investors Service, could follow suit and also reduce the city’s AAA bond rating, he said.

The city received the AAA rating six years ago. “It’s hard to get there, and it will be hard to get back there,” he said.

“Troy has always been fiscally conservative,” said Mayor Louise Schilling, who opposed the tax charter amendment, an issue that has consistently divided the City Council. Although voters approved the amendment, the state has said the proposal is inconsistent with state requirements, and it remains unclear what will happen next.

“People were looking at short term fixes. … In the current economic tsunami, voters thought the amendment would help,” Schilling said.

Mayor Pro Tem Martin Howrylak, who supported the amendment, said it was highly unlikely that the city would keep the AAA bond rating, whether voters approved the measure or not, in light of plummeting property values and the state economy.

Fitch will revisit the city’s ranking during the first quarter of 2009.

You can reach Staff Writer Terry Oparka at toparka@candgnews.com or at (586) 498-1054.