Updated 6:49 p.m.
Fitch, an international credit rating agency, has downgraded San Antonio’s credit to AA+.
For nine years, the city had held a AAA rating, which allowed it to secure bonds at lower interest rates.
Prop C, a city charter amendment that allows the San Antonio Professional Fire Fighters Association to declare an impasse and request binding arbitration in healthcare and wage contract negotiations, was cited as a reason for the downgrade. Voters approved the amendment in November by a margin of less than one percent
“Fitch believes this proposition further constrains the city's spending flexibility over what Fitch already considered to be limited due to long evergreen clauses. Unlike non-public safety compensation, management can't control pay hikes and benefit levels for police officers and firefighters, which must be established through a (collective bargaining agreement),” said Fitch in a statement.
The union has been acting under a 10-year evergreen clause since contract negotiations between the city and fire union stalled more than four years ago. The clause continues the terms of the expired contract until 2024.
A lower credit rating for the city would cause higher interest rates for bonds, including some of the bonds voters approved in the 2017 bond package, meaning a higher cost for city projects.
“We are disappointed in the downgrade, but unfortunately not surprised,” City Manager Sheryl Sculley said. “The ratings agencies told us earlier this year that, if passed, the propositions on the November ballot could severely limit our financial flexibility and operation of the city organization. While the city’s financial position is stronger today than in our annual review last summer, this downgrade is directly related to propositions B and C.”
The other major credit agencies — Moody’s and S&P — kept the city’s AAA bond rating, according to a news release from the city.
When asked how the city could improve its credit rating, Fitch Ratings Senior Director Jose Acosta said many factors would be taken into consideration.
“There could be potential for upward rating pressure if the city could increase its flexibility with its expenditures but that seems like a tall order given the difficulty in realigning some pretty costly benefits and long evergreen clauses and the additional voter-approved constraints on the city,“ he said.
San Antonio Mayor Ron Nirenberg said the city is committed to improving its rating through fiscal stewardship.
“I am confident in our ability to address this situation,” Nirenberg said. “(District 6) Councilman (Greg) Brockhouse’s effort to shift responsibility for the downgrade is laughable. Everyone, including the agencies themselves, told us in advance this would happen. Councilman Brockhouse said it was just a scare tactic. Now voters know who was lying.”
In response, Brockhouse said Nirenberg was being "juvenile."
“He’s throwing a temper tantrum, right?” Brockhouse said. “Let’s be honest here, it’s his total lack of leadership. We have a mayor who’s accomplished nothing. This happened on his watch and he owns it.”
As for the downgrade, Brockhouse said Fitch was out of touch with the other ratings agencies.
“Two out of three reaffirmed AAA status with a stable outlook, Fitch had a problem with binding arbitration," he said. "At the end of the day, that’s their assessment. I’m not overly concerned about it.”
Brockhouse blamed the uncertainty and need for Prop C on the city not having a contract with the fire union.
Joey Palacios can be reached at joey@tpr.org or on Twitter @joeycules
