County in good financial standing, but needs to save more money

Published 1:30 am Wednesday, January 4, 2017

EVERETT — A major credit-rating agency has vouched for Snohomish County’s good financial standing, but added a note of caution.

Moody’s Investors Service in December reaffirmed the county’s favorable Aa2 credit rating — the third-highest available. The designation is surpassed only by Aa1 and Aaa.

“Less than 15 percent of the entities that can issue municipal debt have a rating equal to or better than ours,” county finance director Nathan Kennedy wrote Thursday in a letter to the County Council.

At the same time, the credit analysts warned that Snohomish County isn’t socking away enough cash. A strong economy has helped the county government pay bills with relatively little money on hand. But that won’t last forever.

County Executive Dave Somers, Kennedy’s boss, wants council members to keep that reality in mind.

“Moody’s concern is that when the economy eventually slows down, which all local economies do at some point during an economic cycle, the cash balances may not be sufficient to cover fixed costs,” Kennedy’s letter says.

Moody’s provides an annual rating of the county’s general obligation bonds, which are issued to pay for projects and other needs. Those bonds are backed up — secured, in financial speak — by the county’s general fund budget and its ability to tax, as opposed to a physical asset.

The rating is intended to help investors understand the quality of the county’s debt — in other words, how risky it is to invest in county bonds. If the rating were to fall, the cost of borrowing money would rise. That would force the county to pay more toward debt, and less toward services.

“One might look at it as a report card by a third-party entity on how fiscally sound the county’s general fund is,” Kennedy wrote.

The agency’s analysis labeled the county’s financial position, “quite weak in relation to its Aa2 rating.”

The county’s current budget keeps 8.3 percent of general fund revenue in reserve. Moody’s called that “far inferior to the U.S. median.” The amount declined from 2012 to 2015.

Somers wants to increase cash reserves to more than 10 percent, as an initial step. That still wouldn’t be enough to weather an economic downturn.

A national group of government financial professionals that studied the issue recommended keeping 16.6 percent in cash reserves, which is $15 million less than Snohomish County allotted for the 2017 budget.

“Building cash reserves will be a difficult process but one that must be taken to minimize significant cuts, including layoffs, in the future,” Kennedy said in his letter.

The county’s current general fund budget stands at $238.6 million. Because expenses are rising faster than taxes and other revenues, county leaders last fall had to trim about $6 million in expenses to balance the books in 2017.

Noah Haglund: 425-339-3465; nhaglund@heraldnet.com. Twitter: @NWhaglund.