(The Center Square) – Wall Street credit rating agency Moody’s has downgraded Shreveport’s bond ratings, saying the city’s finances are becoming less flexible and it lacks a solid plan to generate revenue.
Moody’s said Monday it plans to revise Shreveport’s general obligation and senior lien revenue rating from Baa2 to Baa3, the lowest investment-grade credit rating. The agency also lowered the city’s water and sewer revenue bonds to Baa3.
Rating downgrades have the potential to raise borrowing costs and interest payments for municipalities.
In a news release, Moody’s cited the city’s “narrowing financial flexibility coupled with declining debt service coverage levels on the city’s water and sewerage revenue bonds.”
The city has “unclear plans for rate increases to offset growing operational expenses and extensive capital needs,” Moody’s said, and cited its “challenging financial position with expenses outpacing revenue growth over the past few years.”
The city’s reserves are “only about one-third of the sector median despite improvement in fiscal 2024 to 8% of revenues.”
Moody’s said it maintained a “negative outlook” that could be improved by shoring up the city’s fund balance and operating reserves. The agency said it will revisit the city’s finances and plans in 12 to 18 months.
In response, Mayor Tom Arceneaux pointed to the city’s long-term financial obligations under a 2014 federal consent degree that mandated a $342 million sewer system upgrade to comply with the Clean Water Act.
Arceneaux said the city has spent “hundreds of millions of dollars” trying to comply, and that it has begun discussions to renegotiate terms of the consent decree.
Additionally, he said the city is refunding its water and sewer revenue bonds in order to save more than $8 million in long-term debt costs and strengthen its ability to invest in future upgrades.
“Based on the guidance from Moody’s, we will be more aggressive to maintain and even increase the operating reserve,” Arceneaux said in a release Wednesday.
