A bond rating agency is raising a red flag for investors following Montgomery County’s refusal to pay a bill to the tri-county trash disposal authority.
Standard & Poor’s Tuesday announced its ratings for Montgomery County debt and for the Montgomery-Otsego-Schoharie Solid Waste Authority’s debt are being placed on “CreditWatch” with “negative implications as a result of disputed payments under the service agreement that secures MOSA’s outstanding bonds.”
MOSA’s bond rating is impacted by Montgomery County’s refusal to pay its bill because “MOSA’s rating has historically been tied to the member counties’ general credit and their commitment to fulfill their service agreement obligations,” according to the Standard & Poor’s notice.
At the end of 2007, MOSA’s rating was increased from BBB to A- and Montgomery County’s credit rating was upgraded from A- to A.
Tuesday’s announcement means the current dispute could eliminate that progress on both ends.
Standard & Poor’s’ CreditWatch highlights the “potential direction of a short- or long-term rating,” according to the company’s Web site. A “negative” designation on CreditWatch means “a rating may be lowered,” according to Standard & Poor’s.
The county’s refusal to pay its bill, therefore, could lead to lowering the county’s credit rating, one of several pieces of information used by bankers to determine the rate the county has to pay when it borrows money.
The action does the same for MOSA in terms of any future borrowing, but MOSA board chairman Ed Wesnofske said MOSA isn’t likely to be borrowing any money.
“MOSA bonds trade very lightly in the market place and most are placed with institutional investors who have large portfolios that are interested in New York state tax-exempt bonds. But if somebody wanted to sell a bond in which a rating is changed then they certainly may get a lower price for it,” Wesnofske said.
“The question is Montgomery County has outstanding debt and they’re refusing to pay a financial obligation. That reflects on their potential standing to pay another obligation, to pay anybody who is distant from these circumstances,” Wesnofske said.
In a resolution last week, Montgomery County supervisors voted to pay only $69,621 of a $171,369 bill owed to the authority.
The service agreement, a document signed by officials in all three counties at MOSA’s inception, requires counties to see to it that 90 percent of the estimated waste generated in each county is sent to MOSA facilities.
That agreement is what bankers who lent MOSA money used as assurance they’d be paid back.
Part of the service agreement requires counties that fall below their quota, or “guaranteed annual tonnage,” to pay MOSA the full cost regardless.
The clause gives the public authority a guarantee it can generate enough revenue to pay bondholders back for money borrowed to establish facilities, shut down two landfills in Montgomery County and close an ash landfill in Otsego County.
Montgomery County lawmakers reject the budgeting logic in the agreement and, despite the existence of the contract itself, they say they shouldn’t have to pay for the transport and delivery of trash that doesn’t exist.
Standard & Poor’s analyst Robin Prunty said the agency places entities on its CreditWatch service as a warning to investors.
“It’s an action on the bond issue. It highlights to investors that there’s some issues out there that could negatively affect the rating,” Prunty said.
“Obviously we’re concerned with that rating because they have a long-term obligation to make a payment under the service agreement and they’re opting not to do that. That’s just not viewed very positively from a credit standpoint,” Prunty said.
The county is facing a “shortfall penalty” bill because it fell more than 1,700 tons short of the amount of waste the county is supposed to get to MOSA.
In their action last week, Montgomery County supervisors cited “years prior” in which supervisors believe they addressed some of their MOSA bill by paying the cost of dropping off waste minus the cost of transportation and delivery costs.
The shortfall penalty is imposed on waste that never made it to MOSA so supervisors contend they shouldn’t have to pay the cost of getting rid of trash that wasn’t delivered.
But according to a copy of the MOSA resolution from 2004, the MOSA board allowed both Montgomery and Schoharie counties to use outside waste — trash brought in from non-MOSA counties — toward any shortfall from the year before. Following a description of that move, the MOSA resolution further states that “This action does not constitute a waiver of the GAT shortfall subsidy and further resolved that this action is not to be construed as precedent-setting.”
Further complicating Montgomery County’s position is a 1990s decision by state Supreme Court which ruled in MOSA’s favor after Otsego County tried to avoid paying a shortfall penalty.
That decision was affirmed by the Appellate Division of state Supreme Court which ruled that Otsego County also had to pay MOSA’s costs for fighting the matter in the courts.
Amsterdam 4th Ward Supervisor David Dybas said despite the difference between “outside waste,” which was credited back in 2004 and the current Montgomery County waste shortfall that’s under dispute, he believes Montgomery County supervisors are in the right.
“I don’t think we’ve done anything wrong. Montgomery County is saying ‘we’re following what’s been done in the past,’ ” Dybas said.
“What was done years back as I recollect and as I’ve been told is that the MOSA board took and excused the transportation expense and the dumping expense . . . on the amount of the shortfall because whether it’s shortfall, whether it’s out-of-county waste, the fact remains that there was no waste delivered so there was no transportation cost incurred,” Dybas said.
“We’ve done nothing technically wrong to impair the bond holders,” Dybas said.
Minden Supervisor Thomas Quackenbush, chairman of the county Board of Supervisors’ finance committee, said Tuesday he’s no fan of MOSA but said he doesn’t believe the current argument should rise to the level where it impacts the cost Montgomery County taxpayers incur when the county borrows money.
Quackenbush said he agrees Montgomery County shouldn’t have to pay the cost of transporting and disposing of waste if the waste was never delivered.
But Quackenbush acknowledged that the service agreement itself — which bankers look to as assurance they’ll get paid back — says the entire bill is to be paid.
“While I agree in theory that we shouldn’t have to, I suppose we do have the obligation. As I’ve said for quite a while now in regard to MOSA, it’s in our lap and you’re going to have to deal with it until 2014 or whatever the date,” Quackenbush said.
“If our bond ratings are going to go south because of it then we would be foolish not to pay the bill,” Quackenbush said.
MOSA is currently waiting for a second opinion from a bond attorney before going forward with plans to file a lawsuit against Montgomery County for not paying its bill.
In a meeting last week, MOSA’s bond attorney said the authority has to enforce the terms of the service agreement or risk action on the part of bond holders.
The second opinion sought is one which will determine whether the service agreement requires MOSA member counties to pay the full shortfall penalty bill.
If the attorney says there are no deviations allowed in the service agreement, MOSA will go forward with a lawsuit. Otherwise, Wesnofske said, the MOSA board will have to meet again and discuss the issue.