Former Luzerne County commissioner Greg Skrepenak bragged about the county‚??s credit rating in 2007, saying it was restored to AAA status during his administration.
So why are county officials struggling to land a credit rating now?
Officials say the county didn‚??t have its own credit rating, at least not in the last two decades.
The rating cited by Skrepenak was secured for specific bond packages by purchasing costly bond insurance and paying higher interest rates to reassure prospective investors.
The county is trying to get an uninsured rating straight from a nationally recognized rating organization, such as Moody‚??s Investors Service, Standard & Poor‚??s or Fitch Ratings.
These organizations put government entities through the ringer because their ratings help buyers weigh the stability of potential investments without the cushion of insurance in a default.
County officials don‚??t plan more borrowing in the foreseeable future but want a rating to refinance some of the county‚??s $436 million in outstanding debt through 2027, which could save millions of dollars.
The county purchased insurance on all but the most recent bond package over the last 20 years, allowing it to offer investors the highest AAA rating in most cases, said Ray Lowery, managing director of PNC Capital Markets.
For example, the county paid $3 million for bond insurance and put $6.1 million in reserve on an $87.89 million bond package in 2008.
Government entities are now forced to obtain their own uninsured ratings because the financial crisis threatened the stability of bond insurers, Lowery said.
‚??You would pay a tremendously higher interest rate penalty if you tried to bring a bond issue to market without an underlying investment-grade rating today,‚?Ě Lowery said.
Even if insurance backup was still an option, the county was unable to convince Financial Security Assurance Inc., the primary insurer of government bonds, to cover its most recent borrowing of $18.2 million in 2009 because of the county‚??s reliance on borrowed funds to cover deficit spending. The county found it had to pay interest rates of 7.5 to 7.75 percent through 2027 to attract investors without insurance.
More local government entities, including school districts, are undergoing the grueling process of obtaining ratings because of issues with the insurance market, said attorney Brian Koscelansky, who specializes in municipal finance at Stevens & Lee, a law firm that has worked with the county on past bond issues.
‚??For years, investors were relying on bond insurance, but now they‚??re looking a little deeper,‚?Ě he said.
Some are ahead of the curve.
Wilkes-Barre has an uninsured A rating through Standard & Poor‚??s, which is below the mid-level A+ and higher AA and AAA ratings.
‚??It‚??s not easy to get a rating,‚?Ě said city Mayor Tom Leighton, who initiated the first rate-seeking process in 2004.
Rating companies look beyond the long-term financial health of a government entity, examining housing market activity, unemployment rates and the stability of the top 10 largest employers, Lowery said.
Dallas School District Business Manager Grant Palfey said he had to prepare detailed financial reports and answer questions for hours when the district‚??s credit rating was up for renewal.
The district was upgraded from A to A+ by Standard & Poor‚??s last year and maintained an A1 rating from Moody‚??s last month, he said.
Rating companies want to see budgetary reserves, and Luzerne County has none.
The county‚??s financial advisor also urged officials to adopt a sound budget for 2013, improve financial accounting required by audits and implement home rule government streamlining.
County officials unsuccessfully tried to obtain a rating from Moody‚??s last year.
Neighboring Monroe County has a rating of Aa2 from Moody‚??s, said Amy Rosen, who constantly weighs how financial decisions will impact the future ratings.
‚??At one time we had a AAA rating, but it dropped because we have a lower fund balance,‚?Ě she said.