Fact-Checking Claims That Fire Union Petition Will Tank Bond Ratings, Drive Up Costs

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Bonnie Arbittier / Rivard Report

17 years retired assistant fire chief Joe Candelario (right) signs a petition held by five years retired lieutenant Bert Kuykendall at Lion's Field

At a CPS Energy meeting last week, the city’s top officials had some dire warnings about the effects of a petition drive by the San Antonio firefighters’ union.

Mayor Ron Nirenberg didn’t refer to the union by name, calling them a “handful of people in this community” who are putting petitions in front of San Antonio residents, including one that could make it easier for voters to overturn City Council actions.

“I can’t think of a single more destructive thing that could happen to the San Antonio taxpayer than that,” Nirenberg said.

Nirenberg, City Manager Sheryl Sculley and CPS Energy President and CEO Paula Gold-Williams were talking about bond ratings for the City, CPS Energy and the San Antonio Water System, which they argue could suffer a blow from the firefighters’ petitions and cost San Antonio taxpayers hundreds of millions in extra borrowing costs.

“The credit community will take a negative view,” Gold-Williams said of the petition.

To fact-check these claims, the Rivard Report spoke to bond analysts for the three major ratings agencies – Moody’s Investor Service, Fitch Ratings, and Standard and Poor’s – asking how the union’s petition to change the city’s charter could affect the bond ratings.

While the analysts didn’t have the doomsday warnings that came from city officials, they said that changes that make it more difficult or unpredictable for a local utility to raise revenue could negatively affect its bond rating.

The bond issue is one of the many facets of the City’s tussle with its firefighters’ union. On Wednesday, Nirenberg called for the union to come to the negotiating table, calling the petitions “foolish games.” The fire union’s collective bargaining agreement with the City expired on Sept 30, 2014.

Mayor Ron Nirenberg asks the San Antonio Professional Fire Fighters Union to join in contract negotiations.

Scott Ball / Rivard Report

Mayor Ron Nirenberg asks the San Antonio Professional Fire Fighters Union to begin contract negotiations with the City.

San Antonio Professional Firefighters Association President Chris Steele did not return a call or text Wednesday about the bond ratings. A February press release announcing the petitions quoted Steele alongside San Antonio Tea Party president George Rodriguez.

“The deck is stacked against citizens who want to change city ordinances,” Rodriguez said in the statement. “Why should voters be forced to gather nearly four times as many signatures in a fourth of the time, then what state law requires to change the charter?”

All of this is about a financial yardstick that many San Antonio residents have never heard of.

Bond ratings are measures of creditworthiness –  the ability of the City, CPS Energy, or SAWS, to pay back their lenders.

The ratings are directly tied to interest rates, or how much San Antonio can ultimately repay through their taxes and utility bills.

Like all utilities, CPS Energy and SAWS raise their revenue through their customers’ monthly utility bills. Because both are municipal corporations owned by the city, they need City Council approval to raise their customers’ bills.

That’s different than investor-owned, private utilities that typically must ask for a rate increase through a state’s Public Utility Commission.

For private utilities, that process can take about a year on average, said Dan Aschenbach, senior vice president with Moody’s Investor Service.

In San Antonio, that process typically only takes a few months – from approval by SAWS’ or CPS board of trustees to approval by City Council. The most recent round was last December, when City Council approved two years’ worth of water and sewer rate hikes.

If the union’s charter amendment petition is successful, it would make it easier to reverse a rate increase using a ballot initiative. It would change the number of signatures required from 75,000 to 20,000 and lengthen the time limit from 40 days to 180 days.

Last week, Sculley warned that this “creates that environment of uncertainty” around rate increases.

“Sure, council approved it, but it could be undone,” she said.

There’s some evidence that’s true when looking at the criteria Moody’s uses to set bond ratings. One factor, “Willingness and Ability to Recover Costs with Sound Financial Metrics,” counts for 25 percent of the overall bond rating.

CPS Energy’s current score of Aa on that measure means there is “limited political intervention in [the] past or high support from related government.”

CPS Energy has maintained an Aa score or higher since 1973, the City earned a AAA bond rating for the previous eight years, and SAWS earned AA+ since 2013.

“The current process is working well for credit, certainty of recovery, and that’s what we’re looking at,” Aschenbach said.

On the other hand, the lowest score, Ba, would mean a “highly political climate or no support from related government.”

What Aschenbach wouldn’t say was how specifically the fire union’s petition, if successful, would affect this part of the bond rating.

“Even if you have enough signatures, then you’d have to have a vote, and the vote could go the other way,” he said.

Other analysts had similar views on local bond ratings, often putting the union’s petitions in context with other risks facing the City, SAWS, and CPS Energy.

“Generally, we would view any reduction in [a city’s] revenue flexibility negatively,” said Jose Acosta, a senior director in the Austin office for Fitch Ratings, who covers the City.

The independent, legal ability to raise operating revenue without external approval is a “subfactor” in the City’s bond ratings, but probably the bigger issues for the City are threats of a tax revenue cap from the Texas Legislature, he said.

Theodore Chapman, senior director for Standard & Poor’s who covers municipal utilities, said his agency will “take a deliberate approach” when looking at CPS Energy or SAWS.

“We observe utility leaders having to balance reliable operations serving the public health and safety, environmental stewardship, sensitivity to community and social responsibilities and financial integrity every time we talk to them,” he said in an email. “These are all things we consider in our credit ratings.”


Iris Dimmick contributed to this article.

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