Moody’s critiques Alexandria’s credit rating

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Alexandria’s proximity to Washington has long been financially fortuitous, but to retain its AAA credit rating, officials must prove the city is sufficiently independent from the nation’s capital.

The city’s strong credit rating allows it to borrow money at low interest rates. The lower the rating, the more interest the city pays on loans.

Shortly after Moody’s confirmed Alexandria’s AAA status earlier this year, the international credit rating agency opted to take another look at the city’s books. Laura Triggs, Alexandria’s acting chief financial officer, learned in early August that Moody’s had assigned the city a “negative outlook” because of its proximity and ties to the District at an uncertain time for federal spending.

In a conference call with the agency a week ago, Triggs and city staff argued Alexandria’s economy — and finances — are strong enough to weather any reduction in the size and scope of the federal government.

Triggs pointed to the city’s healthy real estate market, tourism economy, education and income levels, location and transportation infrastructure, as well as Alexandria’s track record of financial responsibility. About 6.4 percent of city spending is dependent on federal dollars, she said.

There are no major federal contractors, like Boeing or Lockheed-Martin, with a presence in the city, and the U.S. Patent and Trademark office is a largely fee-based organization — unlikely hurt by potential spending cuts, she said.

While Alexandria isn’t as reliant on federal spending as other municipalities, Northern Virginia will feel a pinch if government expansion slows, said Stephen Fuller, director of George Mason University’s Center for Regional Analysis. The region received $165 billion from Washington last year and has seen decades of steadily growing federal spending.

Fuller believes Moody’s reviewers will leave Alexandria without marring the city’s credit rating. Like Triggs, Fuller notes the city’s federal footprint isn’t as large as in other municipalities.

“I’m just not concerned that the sky is falling, but Moody’s is wise to ask, ‘Are you guys living within your means?” Fuller said. “They’ll probably leave and say it looks OK. It would be silly for them to do otherwise.”

Moody’s is expected to give Alexandria a final rating sometime before the end of November, according to Triggs. She expects it will remove the negative outlook label or affirm it, though Moody’s did not rule out further downgrading the city’s credit.

“They were very careful in speaking in generalities,” Triggs said. “Of the [other municipalities under review] it’s not likely very many would have [the label] removed. We don’t know what their criteria is.”

City officials are paying attention to the debt debate in Washington. The 12-member congressional “super committee,” created after the summer’s debt-ceiling battle, has yet to agree on a way to shave $1.5 trillion from the federal deficit in the next decade. If the committee doesn’t reach a compromise by Thanksgiving, $1.2 trillion in spending cuts will go into effect automatically.

Either way, Alexandria likely will have to weather a reduction in federal largesse, said acting City Manager Bruce Johnson. The conference call with Moody’s was about the city’s current fiscal standing, not the longterm implications of a shrinking federal government, he said.

“The federal government’s actions will have an impact on us eventually — the question is how fast and in what fashion,” Johnson said. “We believe that we are going to be able to deal with it, but in the long run, it may mean that we’ll have less revenue than we [might] otherwise.”

Property taxes comprise the bulk of the city’s annual haul and if the federal government shrinks, lessening the local housing demand, then so too might the city’s real estate market. That could lead to a shortfall during a time when the demand for new public infrastructure — including schools, roads and mass transit — is on the rise.

“At the same time we’re telling Moody’s everything is fine, I’ve got to tell city staff that over the next five to 10 years we have to work hard to keep the budget in balance,” Johnson said.

With so much uncertainty in Washington, city officials will have to limit their capital improvement spending in the coming years, said Vice Mayor Kerry Donley. He expects city council will think hard before approving any new capital projects in the coming months.

“I think the emphasis is going to be on projects that maintain essential infrastructure, like roads and sidewalks and those kinds of things, and those that potentially are investments that will yield a net positive in the long run,” Donley said. “A prime example would be a Metro station in Potomac Yard. If you take a look at the Washington region over the last 30 to 40 years, those investments in mass transportation like Metro have been a real catalyst to revenue generation.”

About 161 municipalities across the country, including many in the metropolitan area, are under review by Moody’s.

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