City Manager Sheryl Sculley.
San Antonio has received the top bond rating from all three major bond rating agencies since 2008. City Manager Sheryl Sculley first was hired in 2005. Credit: Bonnie Arbittier / Rivard Report

The City could be looking at a downgrade of its long-held, gold-star bond rating after the passage of two city charter amendments last week, according to a bond rating agency representative.

What would normally be a routine meeting between Fitch Ratings, one of the nation’s three largest bond rating agencies, and the City of San Antonio next month about finances, debt plans, and the economy also will address how these propositions impact the City’s management and financial flexibility, said Jose Acosta, a senior director at Fitch.

Voters approved Proposition B, which sets a term limit for future city managers and caps their annual pay at 10 times the lowest-paid, full-time city employee, and Proposition C, which gave the firefighters union the ability to declare an impasse in its contract negotiations with the City and force binding arbitration on a new labor deal.

“Proposition C is the most consequential in the near term,” according to a Fitch news release Wednesday. “Under the revised city charter, the unilateral ability for the union to call for binding arbitration before participating in any good-faith labor negotiations is likely to reduce the city’s ability to control its expenditures.”

Ratings are typically reviewed when an entity approaches the market to sell debt, such as a bond issue. The better the rating, the lower the interest rates. A rating decrease is associated with higher interest payments on debt.

When the time comes for a review, Fitch’s bond rating committee will decide what action to take: “an affirmation, or an upgrade, or a downgrade along with negative or positive outlooks,” Acosta told the Rivard Report.

Fitch is also wary of the possible impacts of Proposition B, Acosta said. Under the proposition, a future city manager would be paid roughly $300,000, compared to current City Manager Sheryl Sculley’s $475,000 salary and potential $100,000 bonus.

“Any savings they accrue [from the city manager’s salary] would be negligible compared to the city’s overall budget [of $2.8 billion],” the Fitch release said. “We’d be more concerned about the City’s ability to hire the most qualified person to run such a large city on that salary.”

City Manager Sheryl Sculley, who participates in all rating agency reviews, said the City will strive to keep its gold-star, AAA rating.

“I am sure Fitch will ask about overall revenue and expense picture for the city,” Sculley said. “We will do everything in our power to address their concerns and maintain our AAA rating.”

Fitch and Standard & Poor’s warned against a possible downgrade as the firefighters union’s campaign to get the propositions approved was gaining momentum this summer. Moody’s, another major agency, did not announce a similar warning.

“We each have our rating criteria that we abide by, so we do not coordinate or communicate with other rate agencies,” Acosta said. “The value of the rate agencies is that each one of us is independent.”

Representatives from Moody’s and S&P could not be reached in time for publication.

The meeting in December was scheduled because the City is trying to refinance a U.S. Housing and Urban Development loan, Sculley said.

Voters soundly rejected another proposed charter amendment, Proposition A, which could have lowered the threshold and expanded the scope for public votes that challenge City Council decisions.

“Fitch believed this charter amendment would have been consequential in its potential to greatly limit the city’s revenue and expenditure flexibility and interfere with management’s ability to operate the city,” according to Fitch.

Iris Dimmick

Iris Dimmick

Senior reporter Iris Dimmick covers City Hall, politics, development, and more. Contact her at iris@rivardreport.com