I had the privilege of speaking at the National Association of Water Companies annual meeting in Miami, Florida, last week concerning municipal finances in the United States, and particularly California. The focus of the panel—which also included John Bohn (esteemed former Commissioner of the California Public Utilities Commission) and Mark Strauss (American Water), with Debra Coy moderating—was on potential opportunities for and impacts on the private water sector.
Later that same day, Moody’s Investor Services released a new report on Key Drivers of California Cities’ Rating Actions and Reviews, in which it discusses the financial pressures on California cities and broad action to downgrade or place under review for downgrade the securities of 32 cities and one pooled financing in the state. In addition, the cities of Los Angeles and San Francisco were placed on review for upgrade based on their relatively strong economic conditions and conservative financial positions. The report is worth reading for an overview of Proposition 13, Assembly Bill 506 and pension obligations, and how those affect California city finances.
The report does not discuss debt associated with city enterprises, such as water and wastewater utilities. Those enterprises are generally in a stronger financial position, based on dedicated revenue from utility rates, as long as cities are willing to raise rates to meet expenses on a regular timeline. Given the general economic pressures facing city utility ratepayers, however, we may see some cities with significant deferred capital programs or other management challenges looking to the private sector for help with efficient operations, capital investments or both. In addition, some cities may look at their utilities as valuable assets that could be monetized, i.e., sold or leased, to generate monies for general fund purposes, such as basic public safety.