Fitch Downgrades San Antonio’s Bond Rating from AAA to AA+

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Mayor Ron Nirenberg speaks about Chris Steele cancelling the debate.

Bonnie Arbittier / Rivard Report

Mayor Ron Nirenberg speaks during a rally to vote against the propositions in September.

Fitch Ratings, one of the nation’s three major credit rating agencies, has downgraded the City of San Antonio’s bond rating, City officials said Wednesday, ending a nine-year streak of gold star ratings from all three agencies.

In its rating report, Fitch stated the sole reason for the one-notch downgrade from “AAA” to “AA+” was the voter-approved city charter amendment that allows the firefighters union to call for binding arbitration in labor contract negotiations with the City. If the union chose to exercise that right, a panel of three arbitrators would decide the wage increases and benefit packages for firefighters, potentially affecting the City’s budget.

“[The downgrade] reflects the city’s diminished expenditure flexibility,” according to Fitch’s report.

The better the bond rating, the lower the interest rates the City has to pay on debt.

Meanwhile, Moody’s and Standard & Poor’s maintained the City’s AAA rating.

“While it will be challenging, we are committed to the fiscal stewardship that will be required to regain our perfect bond rating,” Mayor Ron Nirenberg said via text message. “I am confident in our ability to successfully address this situation.”

City Manager Sheryl Sculley and Chief Financial Officer Ben Gorzell met with representatives from each agency earlier this month to discuss San Antonio’s bond rating in light of the City’s efforts to refinance a U.S. Department of Housing and Urban Development loan.

“The anticipated impact of the split rating (two rating agencies at ‘AAA’ and one rating agency at ‘AA+’) on the pricing for this specific transaction is expected to be minimal, if any,” according to a memo sent by Sculley and Gorzell to City Council.

The agency warned of a potential downgrade in November after two of three union-backed propositions were approved. Proposition C gave the firefighters union the ability to declare an impasse and seek arbitration, and Proposition B set a term limit for future city managers and caps their annual pay at 10 times the lowest-paid, full-time city employee.

“The City’s current outstanding debt under [the impacted City corporations] structures is fixed and will not be impacted by the downgrade,” the memo stated. “However, as the City issues future debt under these bond structures, including issuances for the 2017 bond program, the City’s costs would be impacted by the downgrade. The downgrade will also impact the City’s outstanding debt trading on the secondary market.”

City Councilman Greg Brockhouse speaks during the League of Women Voters of the San Antonio Area forum on the Proposed Charter Amendments: Pros and Cons held Monday Oct. 15, 2018 at the Central Library.

Edward A. Ornelas

City Councilman Greg Brockhouse speaks during a forum in October.

During an interview last month, Jose Acosta, a senior director at Fitch, said Prop B was also cause for concern “about the City’s ability to hire the most qualified person to run such a large city on that salary.”

Sculley, who has held that position for 13 years, will retire at the end of June.

“Fitch is clearly out of step with the other ratings agencies, who reaffirmed our AAA status as stable,” said Councilman Greg Brockhouse (D6), who used to work for the police and fire unions and may run for mayor next year. “None of our financial fundamentals have changed, and San Antonio will continue to meet its responsibilities.

“Binding arbitration wouldn’t matter and this downgrade would be a non-issue if we would have finalized public safety contracts.”

Brockhouse blames Nirenberg and Sculley for the City’s failed negotiation attempts with the union, which has refused to start talks. Nearly three weeks ago, the City dropped the lawsuit that the union claimed was the sole reason for not negotiating.

On Wednesday, Nirenberg took issue with Brockhouse’s comments about the downgrade. Brockhouse was the lone council member to support the fire union-backed charter amendments.

“Councilman Brockhouse’s effort to shift responsibility for the downgrade is laughable,” Nirenberg said. “Everyone, including the agencies themselves, told us in advance this would happen. Councilman Brockhouse said it was just a scare tactic. Now voters know who was lying. ”

In the run-up to the November election, some fire union representatives and pro-proposition campaign officials said the City’s financial experts were overstating the risk to the bond rating.

“I hate to be the I-told-you-so guy, but it’s hard to look at this not be disappointed,” Councilman Manny Pelaez (D8) said. “We kept hearing that our warnings of a downgrade were nothing more than cynical scare tactics. Today we learn that our warnings about the economic consequences were well-founded.

“City leadership is going to have to deal with this mess now. I hope we can clean it up before it gets much worse. Thankfully, it seems we have the right team at the helm to face this challenge. ”

A copy of each agency report is available on the City’s website here.

30 thoughts on “Fitch Downgrades San Antonio’s Bond Rating from AAA to AA+

  1. Way to go SA and SA Fire Union! We’ll have higher borrowing costs and a sub par city manager going forward because of paycheck envy. You cut our nose off to spite our face. SA will always be a second tier city as long as a largely uneducated populace shows up to vote.

  2. San Antonio: The city that prefers a cut-rate city manager, hates to use turn indicators, thinks it’s ok to drive in the middle of the street, and thinks a 15-year-old girl getting pregnant is a “gift from God.” God forbid God should ever want to give me a “gift” like that. No thanks, sir. But about those driving habits of your San Antonio chosen….

  3. I bet Sheryl Skulley is having a good laugh over this. The SA electorate felt she was overpaid, yet once word got out that SA is gonna underpay its next city manager, the city suffers. I would be very surprised if Sheryl stays in SA after retirement. I wish her a very happy post-SA life. The laugh is on US.

    • This^^^. Couldn’t agree more. Although I doubt Sheryl is laughing, this whole thing is just really sad. Firefighter and police unions are destroying our city. I wish we could just get rid of them.

  4. Who CARES about Fitch and their AA+ rating???? WHO GIVES A RATS REAR????
    Let’s feed and insure our children, protect our immigrant brothers and sisters, get our schools up from 46th out of 50th in the US!!!!!
    Who gives a CARE about Fitch or their stupid bond rating? We have much bigger fish to fry!!!

    • Well…increased borrowing costs make it harder to pursue long-term opportunities…things like what you mentioned, and more. So, as a citizen of this city, I care.

    • I care! You clearly don’t have at aptitude to understand the consequences of what could happen if out bond rating continues to fall.

    • Unfortunately, with a lower bond rating, our city will have to pay more interest which means the city will have less money to help with all those things you listed…

      • Additionally, given the scale of municipal bonds, the higher interests to be paid thanks to the drop in bond rating will now certainly be far greater than any single savings from a cap in city manager compensation.

        We haven’t even gotten into to the forced arbitration with the union over contract entitlements, which will further devour the city’s budget. The amount that will ultimately be paid out in union contract entitlements over the long-term will certainly be far greater than the already denounced costs of litigation.

        More money paid in interest and on broad benefits for a unionized sector is simply less money the city can spend feeding children.

      • put it like this with a 7.5 billion bond to be paid off in 2022 under the AAA bond rating it would only cost the city 1.75 million dollars but now on a AA+ rating it is going to cost 2.65 million dollars at the minimum. it can still cost more. these numbers are just an example they are not accurate

  5. That someone would in the same comment say “who cares about our city’s bond rating” and then berate the city to do more for education and the poor…things that cost MONEY that comes from BONDS that can’t be sold for as much with a lower credit rating, shows exactly why our city will suffer. We are doomed by an uneducated populace that votes as they are told or in anger. This is a very sad day for San Antonio, and will continue our looking at other cities with better infrastructure, booming economies, and better care for all, with envy.

  6. The ill informed SA electorate has just voted themselves an increase in bond financing costs due to the rating downgrade, as was warned by knowledgeable sources.
    The result will be a reduction in city services or an increase in property taxes, or both.
    Perhaps the increased borrowing costs should be deducted from the firemen’s compensation package and ridiculous benefit package in arbitration.
    Chris Steele and the firemen’s union has succeeded in putting SA on the same path as the bankrupt City of Chicago and State of Iilinois. Greg Brockhouse is an unwitting proponent of financial turmoil and is not qualified to be mayor.
    SA will not be a world class city or “a city on the rise” thanks to the recent vote.
    I welcome any responses and a debate.

    • I’m for this. “Perhaps the increased borrowing costs should be deducted from the firemen’s compensation package and ridiculous benefit package in arbitration.”

      • the Fire men and women got what they needed in medical care, what they wanted is NOT to pay for the spouses and kids medical they wanted that free as well.

  7. We were the only city with over 1 million residents with a AAA rating and somehow we allowed individuals who are looking out for their own self interest to derail our rating. Whether we agree with it or not this will increase our borrowing costs. The blame for this rests with the ones who wanted to advance their egos and I hope the few who vote in the next citywide election remember what led us here.

  8. While Councilman Brockhouse and union leader Chris Steele got most of the attention during the run up to the election, it is time to call out the other complicit parties who have now most certainly driven up the citizen’s future taxes for their own personal gain: the firefighters themselves. For political purposes, the firemen drew very little attention during the debate. However, without their support of Chris Steele, San Antonio would have never reached this terrible point.

  9. I pray the residence of D6 realize that Brockhouse is bought and paid for by the fire fighter’s union and not looking out even for his other constituents in D6 let alone he rest of the City. Why the rest of the city’s population allowed themselves to be blindsided into thinking the propositions wouldn’t hurt the whole city, i can’t imagine. Let’s hope the leadership of San Antonio can find a way to undo the damage. Could the voters of San Antonio put a proposition on the ballot to void the 2 that passed?

  10. So can some reporter find an expert and tell us what this actually means? I hate all the politicized rhetoric on both sides, give me some facts. I hear over and over this will cost the city millions, but how does that translate to me specifically? I know nothing about bond calculations, but Google searches get me this: current 10 year muni bond rates: 2.4% AAA, 2.7% AA. The report cited above says the city intends to borrow $24.5 million. Interest at 2.4% = $588,000. Interest at 2.7%=$661,500. Difference annually of $73,500. As of 2015 report available from, there were 477,134 households in San Antonio. $73,500 differential divided by 477,134 households is $0.15, so this means I will pay 15 CENTS more per year? I’m not sure that’s worth any panic. But like I said, I have no idea how muni bonds actually work, so my calculations could be way off; hence, why perhaps an expert could be found to really do this right and give us the number. If it’s 15 cents, I really couldn’t care less, if it’s hundreds of dollars, maybe I am more concerned. Stop parroting headline material and give us some actual reporting on impact, please.

  11. Not only have voters approved massive borrowing and debt in the city but schools as well. The voters have only themselves to thank for voting for or just staying home and not voting. We vote for massive debt then blame the politicians. Look in the mirror.

  12. Wow. This bond rating issues is akin to the all immigrants are terrorists rhetoric. I noticed the article did not mention what the increase in borrowing costs were going to be-could it be that it would be negligible? The article just wanted to stoke fear into the publics’ minds since the election did not turn out the way the media and others wanted it to. Who brought on the issues to be voted on anyway?? Yes, the politicians. Not only did the issues get on the ballot but they won.

  13. As evidenced by the recent passage of Propositions B and C, and this weeks downgrading of San Antonios’ bond rating from a AAA to AA+, it has become blatantly obvious that many in our city have little understanding as to how the mechanisms of our local governments operate. Granted, yours truly doesn’t have all the answers, especially when it comes to understanding the fine print of policies and procedures. But the recent results from the passage of Props A and B, as well as the lowering of our bond rating, expose a sad window about the level of civics understanding among our local populace.

    As evidenced from recent Facebook comments from Pro Proposition advocates, some individuals were glad to see the passage because ‘the land bridge for animal crossings’ will no longer be built. The land bridge was passed via the bond package worth 850 million in 2017. Another Facebook commenter stated that they were pro Prop, because this will (paraphrasing) ‘let our Mayor know that the ratings drop was due to his inefficiency,’ as to ‘how our tax money should be spent’.

    If passage of propositions A and B, do not wake up our local leaders of the lack of understanding among our citizens, then it is incumbent upon them to inform. Granted, I have been an audience member of a Housing Initiative open meeting, which in my view lacked communication amongst the board members and it’s attendees. I have also advocated to elected officials the need to inform the public as to why it is vital for our community to be informed when it comes to making their decisions at the ballot box. Unfortunately this pursuit fell on deaf ears.

    Personally, I am baffled by the lack of effort our elected leaders have historically demonstrated in educating voters. Again the end result being the drop from AAA to AA+. Civil Rights leaders such as Delores Huerta, co-founder of the United Farm Workers, along with Ceasar Chávez, have come to San Antonio imploring local leaders that the best way to get the vote out is to educate voters into the “why,” they should vote. Granted the state is responsible for educating our children when it comes to civics understanding, but as witnessed by our state voting turnout, this effort is ineffective and it doesn’t appear that it will change anytime in the future.

    One possible remedy to this issue should be for our local government sectors, the City, County and local municipal agencies work with local nonprofit organizations or volunteers in using their facilities during after hours to promote workshops to inform our citizens in the local, state and national politics. Count me in as a volunteer. Use local media to promote these efforts. Elected leaders should also advocate for this effort. For too long in our state, many of our citizens through generations have been left uninformed. If the state won’t teach our people, then we must do it ourselves, locally.

    • Hope our leaders read your reply. You are so right! In my opinion everything in perspective. An aha moment. After reading the above replies, I don’t doubt the downgrade. But it also sounds like they are blaming the departments and a certain councilman for it. I guess some people are willing to work harder for what they believe.

  14. Aren’t bonds debt? Is our city in debt? How much? Reactions here sound like we need the ratings to continue our spending. Sounds like we’re worried we won’t be able to spend more of what we don’t have for the amount of interest we like. Let’s be optimistic. Maybe this will lead our leadership to prioritize to adjust accordingly.

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