'Impact the taxpayer': Dozens of governments put on watch list after late filings
Wed, Mar 15, 2023 11:00 AM
By Joe Mueller, The Center Square
The credit ratings of dozens of local governments and utilities throughout the nation are declining because of a failure to file 2021 financial information, according to a leading finance organization.
S&P Global Ratings placed 149 governments and public utilities with tax-secured debt from 31 states on a watch list, which will potentially have negative consequences for borrowing funds in the future.
“Lower-rated debt or unrated debt will typically result in higher interest costs when borrowing, which could ultimately impact the taxpayer,” Orla O’Brien, director of S&P Global Ratings Communications, said in an email to The Center Square. “We note that while there has been an increase in rating actions from lack of timely information in 2023, this still remains a very small portion of our overall rated universe.”
S&P Global Ratings’ report showed its ratings actions increased approximately 30% from 2021 (93) to 2022 (125). The ratings actions increased another 20% from 2022 to March 2023.
The ratings service stated it could withdraw government credit ratings if it doesn’t receive fiscal 2021 financial statements by April 12. If 2021 financial statements are provided by the deadline, the agency said it would conduct a full review and take a rating action within 90 days of the entity being placed on the watch list.
“In order to maintain our ratings, we rely on the timely disclosure of financial and related information relevant to our credit analysis,” the report states. “For U.S. public finance (USPF) issuers and obligors, we view proactive disclosure and dissemination of information as a positive management characteristic. Conversely, we view the lack of timely disclosure and information flow negatively. On a year-over-year basis, we have recorded a notable increase in negative rating actions due to information sufficiency and quality considerations.”
Missouri had 20 local government entities placed on the list, more than any other state. Following Missouri was Texas (16), New York (11), Pennsylvania (11) and Alabama (8). Since 2018, the agency reported New Mexico, Alabama and Mississippi had more than 10% of its governments placed on watch lists due to late filing of financials.
The report also mentioned several factors leading to late financial filings.
“It is our understanding, based on our outreach on this topic to issuers and their agents that this year has seen a marked increase in staffing shortages at auditing firms, resulting in significant setbacks to complete issuers' financial disclosures in a timely manner,” the report said. “In addition, we understand that issuers have faced staffing turnover in key reporting departments, which has further contributed to delayed reporting. With an acute shortage of certified public accountants (CPAs), according to the American Institute of CPAs 2021 Trends report, we believe the number of delayed disclosures could further increase in the near term.”
Other states with governments on the list include Arizona, Arkansas, California, Connecticut, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Montana, New Jersey, North Dakota, Ohio, Oregon, Rhode Island, South Carolina, South Dakota, Washington, Wisconsin and Wyoming.