Moody’s Ratings, Fitch Ratings, and S&B Global Ratings have all downgraded Corpus Christi’s credit rating due to a looming water crisis, which could prompt a Level 1 water emergency as soon as September.
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Corpus Christi’s looming water crisis has prompted the nation’s largest credit rating agencies to downgrade the city’s credit ratings or put it on notice that a downgrade could be forthcoming.
But how has the Coastal Bend’s longstanding drought impacted Corpus Christi’s creditworthiness, and what does it mean when a city’s credit score worsens? Turns out, a lower credit score can impact everything from a resident’s monthly water bill to whether or not a new business chooses to open its doors somewhere else.
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What is happening to Corpus Christi’s credit rating?
Right now, the three major credit rating agencies — Moody’s, Fitch Ratings and S&P Global Ratings — are all keeping a close eye on Corpus Christi as the city stares down a potential level one water emergency.
Moody’s first announced its downgrade in December. Last month, it announced it was placing the city “under review” for another potential downgrade, depending on how the water crisis plays out. On April 8, Fitch Ratings — which is owned by MySA’s parent company, Hearst — said it was downgrading its outlook from “Stable” to “Negative.” And on Monday, May 4, S&P Global downgraded the city’s credit rating by “two notches,” from “A” to “AA-” while also placing the city on a so-called “CreditWatch with negative implications.”
How does a lower credit rating impact a city?
Just as a bad credit score has negative implications for an individual, a lower credit rating can have costly consequences for a city, especially when it comes time to borrow money.
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Mike Perez, who has more than four decades of experience in public administration, including 21 years as McAllen’s city manager, told MySA that a lower credit rating means higher interest rates and higher costs. When a municipality’s credit rating falls below AA, it may have to purchase insurance to reassure investors of its ability to repay the debt. Further, every ding to a city’s credit rating can raise the cost of taking out a long-term loan.
“You’re talking (borrowing) a billion dollars? You’re talking millions of dollars more to your cost that you have to borrow and you have to spread that over to ratepayers,” due to the higher interest rates, Perez said.
Currently, Corpus Christi’s efforts to build a $1.2 billion desalination plant — which it has already borrowed hundreds of millions for — have remained stalled, but the city is moving forward on hundreds of millions of dollars’ worth of groundwater well-digging projects.
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Shown is the Lake Texana boat ramp in 2011.
KELLY MORRIS/Courtesy Texas Parks and Wildlife Department
How will Corpus Christi’s lower credit rating impact residents?
As Perez alluded to, when borrowing costs more, those costs are usually passed on to consumers through utility rate increases. But there’s a limit to how much residents can realistically afford to pay. And that’s something credit agencies, like S&P Global, take into account when determining their ratings. In Corpus Christi’s case, Nueces County’s “elevated poverty rate” has S&P Global concerned that higher utility rates could cause more people to become delinquent on their bills, which would impact the city’s ability to repay its debts.
How does a city’s credit rating impact local businesses?
It’s not just residents who are impacted by a city’s credit rating. Local businesses — or potential businesses — could decide not to open up shop if a city’s credit rating tanks.
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“And rightly so, because they have more to lose,” John Milford, a former city administrator with more than 30 years’ experience, told MySA on Tuesday. Milford recently retired from the University of Texas–Rio Grande Valley, where he taught public administration, including public finance.
“Industries and companies that want to invest and increase the (city’s) tax base, they look at that,” Milford said of a city’s credit rating. “They look at the stability of the elected officials, they look at the stability of the management and say, ‘Do I want to invest my monies into a community that doesn’t have the stability?’” he said.
Neither Milford nor Perez could recall a similar instance in which the availability of a natural resource — or the lack thereof — has caused a change in a Texas city’s credit rating. For both, Corpus Christi’s water crisis-fueled downgrades are a first.
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“I can’t think of anything like what Corpus is going through. That’s a pretty tough situation they’re in,” Perez said.