REMEMBER THE FINANCIAL CRISIS when big banks melted down and millions lost their jobs? Among the causes was a glut of sketchy mortgages dressed up to look like fantastic investments. The allure of these crooked schemes set our economy back 20 years because the credit rating services–which got paid by the hucksters peddling the deals–gave the investments their highest ratings though the mortgages were almost certain to fail.
If you remember any of that, you might want to know that one of the biggest credit rating agencies, Moody’s Investor Service, is still around and making credit judgments that affect public policy here in Columbia County.
A few weeks ago Moody’s gave bonds issued by the Ichabod Crane Central School District one of its top investment grades, Aa3. The current, better-behaved Moody’s is undoubtedly right about ICC. This matters because a high rating that accurately reflects financial resources means that the school district can sell bonds at favorable interest rates to support its capital improvement projects. The result is that district taxpayers will pay less to retire the bonds and students will attend safer, better equipped schools.
Last week Moody’s gave the county the same high rating for $9.8 million in bonds that it will issue this month. But the narrative accompanying the rating issued a “negative outlook” for the future creditworthiness of the county, citing the lack of cash on hand and the financial drain placed on county finances by the Pine Haven Skilled Nursing and Rehabilitation Center in Philmont.
The county’s reaction has been abrupt. Where just a few weeks ago the county was paying an architect to draw up plans for a new, larger building to replace the current Pine Haven, there’s now a bipartisan effort by the Board of Supervisors to sell Pine Haven as fast as possible.
Wait a minute… Who’s running this county, elected officials or Moody’s? You might not like the answer.
In the aftermath of the financial meltdown, Congress adopted and President Obama signed the Dodd-Frank Law, which led to new regulations governing credit rating firms like Moody’s. Maybe the new oversight will prevent future mega-scams like the ones that fueled the Great Recession, but local governments have little choice in the matter. They have to borrow so they can build and repair roads, bridges, sewers, schools and nursing homes. All of that would be impossible without some sort of third party like Moody’s whose job is to alert investors to the risks involved.
It’s a huge market. Moody’s website has over 21,000 pages full the company’s ratings of public financing projects in the U.S. The ratings help bring some order to the borrowing process. Borrowers who don’t like Moody’s can use another service, but once a big service has spoken, small borrowers like the county have to live with the results. If the Board of Supervisors tried to ignore the warning from Moody’s to stem flow of red ink from Pine Haven, the county’s bond rating would go down and county taxpayers would pay the price. So instead we have a rush to unload the nursing home.
For decades the county has offered nursing home care to residents, many of them without resources of their own. It only took three weeks for the supervisors to make a complete about-face, shelving the plan for a new home and putting Pine Haven on the auction block. It appears they did so without having laid out alternatives other than the threat of a huge tax increase if the board doesn’t shed the burden of Pine Haven immediately. That doesn’t sound like good management. That sounds like panic. And it invites more trouble.
The subsidies for Pine Haven aren’t the only financial drain on the county identified by Moody’s. Cash is the other, though the two are related. Are there other reasonable actions the county can take to give itself some breathing room with Moody’s? Plunging into an immediate sale shuts down the discussion of options. Do we know, for example, what terms the county could require of a new owner? What about hiring preferences for current Pine Haven employees?
The supervisors are making big decisions about essential county services with very little public input and no apparent long-term strategy. The Pine Haven Subcommittee should begin immediately to fill in the gaps. Invite the public to offer ideas. Listen carefully to what people say. Moody’s has told the county what we must do, but despite how supervisors have reacted, the company has not told us exactly how we must do it.