Moody’s and Standard & Poor’s both withdrew the City of Odessa’s bond ratings last month, leading some to believe the city could have a much harder time obtaining financing for any future capital improvement projects.
Odessa City Manager John Beckmeyer disagrees with that assessment. He also said steps have been taken to get the ratings back and to ensure they’re not withdrawn in the future.
S&P and Moody’s rate municipalities and other entities based on objective and independent analytical information and share that information with the marketplace.
In this instance, both companies announced they withdrew the city’s A+ rating because they had “insufficient or otherwise inadequate information” to support that rating.
It turns out, they didn’t have the information because the city has yet to complete its 2022 and 2023 audits.
Texas economist Ray Perryman said their decision could have negative ramifications, but not as severe as what would have happened had they been withdrawn due to financial weaknesses.
“Bond ratings are important to municipalities in that they provide the most common measure used by the financial markets to evaluate their creditworthiness,” Perryman said. “The removal sends a message to investors that the City of Odessa has not been providing the type of financial information that is necessary to determine its ability to meet its obligations. Such failures make it highly unlikely that investors will be willing to risk their funds in the city’s obligations.”
The decision is not unprecedented, he said, but it only happens a few times a year.
”It’s viewed as a substantial problem in the investment community. One consequence of this failure is that it will compromise the ability to raise capital for infrastructure and other public needs in the future,” he said.
Even if the ratings are fully reinstated, Perryman said the fact they were withdrawn will remain a matter of record.
“Moreover, the municipal bond market is dominated by a few major firms, and the removal will be known in the market. It is something of a canary in the coal mine which can make bonds more difficult to market in the future,” Perryman said. “Hopefully, the ratings will be restored soon, but the city will almost certainly face greater market scrutiny and a smaller pool of potential investors going forward.”
Beckmeyer said there won’t be any negative impact on the city’s ability to obtain funding for infrastructure projects. There will just simply be a note indicating the audits were late, he said.
“Our bond council’s been working with the rating agencies, and it won’t have an impact on that,” Beckmeyer said.
“There hasn’t been any change at all in the city’s credit position,” Beckmeyer said. “We should be fine. It’s better that it happens now than if we were trying to go out for certificates of obligation or bond or anything. It’s not one of those things that you’d ever want to happen, but it’s one of those things at the time, it was better now than it would have been at other times.”
Craig Stoker, who is running against Odessa City Councilwoman Denise Swanner in November, said the blame for the situation rests squarely on the shoulders of the city council.
“One of the many unintended consequences of this council’s decision to fire former city manager Michael Marrero has been the loss of decades of knowledge in most, if not all, city departments,” Stoker said via email. “Firing Marrero felt personal, and not only did it cost the city a ton of money to buy out his contract, but letting former Assistant City Manager and Certified Public Accountant Cindy Muncy walk out the door is proving to be an even costlier consequence. Muncy brought decades of audit experience to her role as ACM, and because of her abrupt departure the city has struggled to complete their financial audits.”
He said he knows what the loss of the bond rating will mean.
“Our ability to borrow money has vanished,” Stoker said. “We had all better pray that the water system holds up, or that we don’t have another major emergency come up during this time or we’re sunk. It’s a shame all this could have been avoided with solid and supportive leadership from council, but instead this was just the beginning of the friction we’ve become so familiar with. I hope we all remember this in November.”
Cal Hendrick, who is running against Mayor Javier Joven in November, said the situation is “completely inexcusable and unacceptable.”
Ultimately, it’s the mayor’s responsibility to ensure the audit gets done, Hendrick said.
“The fact that the audit has not been completed is inexcusable and demonstrates a complete and utter disregard by Mayor Joven of his duties and responsibilities as mayor,” he said. “It’s a shame, and it’s embarrassing. The more I dig into the issues affecting the city, the more discouraged and shocked I have become. I don’t wanna sound like an alarmist, but the totality of the condition of the city is dire.”
The Odessa City Council voted on Dec. 13, 2022 to terminate Marrero and City Attorney Natasha Brooks and one week later Muncy retired.
Zackary Beseril, the city’s budget manager, submitted his resignation letter April 3, 2023 and Director of Finance Larry Fry retired effective May 31, 2023.
Interim Director of Finance Seth Boles resigned Sept. 29, 2023, shortly after finishing up the FY23-24 budget for the city.
Beckmeyer said that when he replaced Interim City Manager Agapito Bernal in August 2023, the first order of business was to prepare that budget.
Boles told him they were running a “little bit late on the audit” but it was 80% complete, Beckmeyer said. After Boles quit, he learned the audit wasn’t anywhere near that complete from the city’s outside auditing firm, Weaver.
Two months later, the city hired a new finance director, Kaylie Banda, and an internal auditor, Kala Hardy and the women immediately began to work on the audit, he said.
“There was no paper trail so we had to build it from the ground up basically and that’s what’s taking so much time,” Beckmeyer said.
“The basic accounting was still there. But how they extrapolated the numbers to deliver to the auditors, we didn’t have those processes available to us…The finance department went through their worksheets and all, and they didn’t add up. So we wanted to make sure we had a good, complete audit and had the right numbers.”
Beckmeyer also said the city’s fixed assets weren’t documented to the extent they felt they needed to be so they had to work through that before they could provide Weaver with everything they needed.
Beckmeyer said the 2022 audit should be done within the next week and the 2023 audit will be completed within two or three months.
“I can’t say enough about Kala and Kaylie, and really, Kaylie’s whole team, they made it where, if we all walked out tomorrow, there’d be enough of a paper trail, somebody else could walk in and continue. And that’s what we didn’t have,” Beckmeyer said.
Beckmeyer said it is unfair to lay the blame at the feet of the city council.
”The city council knows primarily what the staff will tell them,” Beckmeyer said. “The previous finance department did a disservice to the city by not better documenting what they were doing. And I am truthfully hopeful that this is the last challenge that we have trying to get things back online.”
Beckmeyer noted that over the last year, city staff has tackled several other issues.
“We’re getting the vehicles on a schedule where we don’t end up with trash trucks that are 12 years old out there breaking down. We don’t have police cars that spend more time in the shop than they do out on the street. We’re not sitting here waiting for years, literally, years on fire trucks, where it should be a year or two,” he said.
Odessa City Council member Steve Thompson said he has been asking city staff about the 2022 audit for months.
“Intuitively, because of my past experience on the hospital district board, I knew it was going to be a problem sooner or later,” Thompson said.
Thompson said he is confused why it took the city so long to complete the audit. He’s known Muncy for years and is positive she left the books in good order.
She was the city’s outside auditor before she was hired by the city, Thompson said.
“Who would know the books better than her?”
He agrees with Perryman’s assessment that the city could have problems seeking financing in the future. Several members of the council are opposed to taking on debt, but that’s shortsighted, he said.
Given the city’s water infrastructure woes, the city needs to be in a position where it could pass a bond or take on certificates of obligation, he said.
“(Craig Stoker) is totally correct because there could be an emergency and if we have to do something like that, we’ve got a problem,” Thompson said.
No other council member responded to an email seeking comment.
