Updated 5/13/14 [ See Below ]
It’s easy to point critical fingers at individuals who regularly spend more money than they make, paying for toys and parties instead of basics while racking up debt.
This describes many financially irresponsible residents of Walker County, but it also applies to county government over the last decade under the control of Commissioner Heiskell.
Now those years of living on the edge financially have – surprise! – ruined the county’s credit.
On May 6th, Standard & Poors Ratings Services announced Walker County’s bond rating was dropping four points from a healthy AA- to BBB+, two steps away from “junk” status. That followed a mid-March warning from Moody’s Investors Service that the county’s debt position has a “negative” outlook.
Those bond ratings are the government equivalent of a credit score. A downgrade means the county’s existing bonds for SPLOST have lower resale value for investors, future bonds and bank loans will be harder to get or sell, and any bonds or loans taken out in the future will cost the county more money due to higher interest rates.
How did Walker County get to this point? Economic stagnation, over-dependence on manufacturing jobs, and a pattern of poor financial decisions from Commissioner Heiskell.
The primary risk cited by both S&P and Moody’s are Hutcheson debts guaranteed by Walker County. The hospital is equally owned by Dade, Walker, and Catoosa but a majority of its debts are tied to Walker County since Heiskell continued to support Hutcheson after Catoosa and Dade leaders refused to get involved. Hutcheson’s debts now exceed $70 million, far beyond what the hospital’s assets (and county ownership of them) are worth.
Walker County will be left holding the bag on Hutcheson if the hospital defaults on its debts, closes down, or loses the lawsuit filed against it (and the three counties) by Erlanger – which seems like only a matter of time.
The S&P downgrade also cited three sets of debts that have to be paid down by the end of this year, including the 2008 SPLOST bonds and a recent short-term loan. The amount of debt the county carries vs. its income means refinancing any unpaid bonds or loans will be much more expensive than current interest payments.
Walker County’s heavy debt load has been cited by LU countless times in the last few years, and was pointed out by Dr. Paul Shaw during his 2012 campaign to replace Commissioner Heiskell. Heiskell dismissed his concerns saying the county was practically debt-free. Obviously that isn’t the case now, and wasn’t the case then either. Now that stack of debt has come back to bite the county (and its residents) in the butt.
Another reason for cutting the county’s credit rating is the practice of spending reserve money for years instead of raising taxes in small amounts incrementally (or cutting expenses). Heiskell last raised taxes in 2010, but held off on an increase in 2011, 2012, and 2013.
If she had touched the property tax milage rate in 2012 someone else would be Commissioner today, and if she had tweaked it a year ago her SPLOST renewal plea (based on not raising taxes) would have fallen flat with voters. Her political savvy has produced a financial mess that will end up costing taxpayers more than adjusting tax rates all along would have.
An early draft of Walker County’s 2013 audit obtained by S&P shows the county is down to only $1.3 million in backup cash after spending 12% more than tax revenue last year. That’s why Commissioner Heiskell has taken out short-term loans from the Bank of LaFayette three straight years, because she’s spent more than she’s raked in every year since the last tax increase.
County management told S&P analysts problems will be fixed through a planned tax increase and “cost-cutting measures” predicted to bring about a budget surplus for 2015. That tax increase will be a reality this December, but there’s absolutely no sign of any cost cutting – at least not where it matters most.
So far this year Heiskell has removed 423 acres of land from the county’s taxable property list, took out another $7 million loan to cover shortfalls, announced an expensive program building useless empty community centers disguised as “emergency shelters,” invested more money into unwanted trails on Lookout Mountain, and signed an agreement with the state making Walker County responsible for MORE McLemore’s Cove property, including a dilapidated insurance-risk barn. That’s on top of the hundreds of thousands spent on Money Pit Farms LAST year.
Unaudited financial data from the county shows at least $2,000 a week spent just on payroll at Mountain Cove Farms all through 2013, a rate not expected to drop this year as the county expands that site and prepares to host a county fair there this fall. (Peak weekly payroll exceeded $6,500 during the Civil War reenactment in September. That’s a lot of property tax revenue.)
County government also spent hundreds of thousands it didn’t have at that property for pavement, furniture, appliances, paint, environmental damage fines, and new buildings. Heiskell has, however, cut employees and costs in the road barn and at Walker Transit – services that actually benefit citizens and should be funded but aren’t, in order to keep throwing money at this pet project.
Heiskell’s management of, and obsession with, Mountain Cove Farms is the governmental equivalent of a hillbilly father buying a flatscreen TV and new iPhone while his house falls in and his kids go to school without shoes. That irresponsibility is reflected in this loss of credit.
Last year Heiskell didn’t set a 2013 budget until the fiscal year was almost finished, and she’s done the same thing in 2014 – as of May 12th the county hasn’t formally adopted a budget for the financial year that ends on September 30th. That violates an unenforced state law, and is also given as another reason for downgrading the county’s credit – and it’s the one that would be easiest for Heiskell to fix if she truly wanted to.
When announcing her plan to raise property taxes a month ago, Heiskell mentioned budgets – which means she has SOMETHING written down to run the county from, even if a budget was never formally adopted. She could make that unofficial budget official in thirty seconds with the stroke of a pen, but won’t do so because that would restrict her from tweaking numbers as the year goes along.
Waiting until August to lock in a final budget for the October-September year allows Heiskell to pick figures that match her wild spending instead of responsibly matching her spending to a pre-set budget based on reality.
So what does this mean for Walker County and the 68,000+ people who live here?
For starters, it means any future bonds for SPLOST or other projects will deliver less bang for the buck. Higher interest means a greater portion of tax revenue will go to pay back debt than to building, construction, or repair. Future stopgap loans from banks to handle emergencies or fill revenue shortfalls will also cost more.
When, and if, adults take over leadership at Hutcheson, any refinance or restructuring deals there will cost more, if they can be obtained at all, because of the county’s worsening financial position and credit rating. Gone are the days of Walker County propping up the hospital simply by signing on the bottom line.
Economic development projects, like the 2012 bond deal supporting Phillips Bro. Machine, will also be more expensive for the county and involved businesses. Companies considering Walker County will have more reasons to choose another location, in light of higher loan/bond costs.
Because of the downgrade, Walker County will be much more difficult to manage in future years, regardless of who sits in the driver’s seat. Heiskell isn’t likely to be reelected in 2016 (assuming she even chooses to run again), but whoever supplants her will be disadvantaged from day one because of this situation. A little present from the current Commissioner to whoever dares take her place.
Worst case scenario, if Walker County continues in the current direction with the current leader using her normal management style, another downgrade to “junk” status would result in the county entering financial meltdown, unable to refinance debt, issue bonds, obtain loans, or even meet regular expenses without a massive tax increase.
In response to the downgrade, Walker County asked Standard & Poors to stop rating the county’s bonds. S&P complied with the request, withdrawing the BBB+ rating.
This doesn’t mean the rating was incorrect or based on anything inaccurate, it just means county bonds are no longer rated by the S&P. As one commenter said, it’s like quitting school because you don’t like the teacher. Or taking your ball and going home because you don’t like the rules.
Without S&P input, Walker County’s bonds are now only rated by Moody’s, which has (as noted above) already given a warning of possible downgrades for the same reason S&P did. If Moody’s is also asked to withdraw, future county bonds won’t be rated at all, making them a hard sell for investors reliant on those ratings to decide what to buy.
Asking S&P to withdraw its rating also shows the county isn’t serious about fixing what’s broken, because there won’t be a ratings upgrade if promised changes ever make an improvement.