Bad Roads Could Bring Bad News For Louisville's Bond Rating
Years of neglecting to fund infrastructure repairs is setting the city up for a "day of reckoning," according to Democratic Councilman Brent Ackerson.
The councilman is proposing to spend the city's $10 million budget surplus entirely on infrastructure repairs. But he's up against a counter proposal from a fellow Democrat for what to do with the found money.
The council is expected to discuss both proposals at its regular meeting Thursday night.
Louisville is more than $112 million behind in road paving needs alone, according to information provided to Ackerson by Metro Public Works. To stop that deficit from mounting, the council would have to allocate at least $15 million for road repair alone each year for an indefinite period of time, according to the data.
That would be an unprecedented investment: Only once since 2004 has more than $15 million been allocated for total city infrastructure needs in a single year. That includes roads, sidewalk repair, bridge and road maintenance.
Ackerson, who represents District 26, said that on top of the $112 million road repair deficit, the city is also facing an estimated $86 million sidewalk repair deficit.
If that trend continues, the deficit will grow and there will come a time "where all we'll have money to do is pay down the deficit," Ackerson said in an interview earlier this week.
"If we don't take responsibility now, we are going to be in a world of hurt financially later as a city," he said.
Ackerson said ignoring those repairs could have ramifications on the city's ability to borrow funds for projects in the future, a claim financial experts support.
Credit Rating Could Take A Hit
Currently, Louisville Metro boasts a high bond rating among the top credit rating agencies of Moody’s Investors Service, Fitch Ratings Inc. and Standard & Poor’s, according to Mayor Greg Fischer's office.
A spokesman for Fischer said the possibility of the bond rating being affected by a lack of infrastructure repair has never come up during regular meetings between the city's financial leadership and credit rating agency representatives.
"They've never mentioned this as an issue," he said.
But economic experts say poor infrastructure can have an effect on a city's ability to borrow money.
John Nelson is an economics professor at the University of Louisville and former financial consultant to the Metro Council.
"Definitely, if the infrastructure is not up to par, that will have a negative impact on our bond rating," he said.
David Dubofsky, a finance professor at the University of Louisville, said roads must be repaired, and liabilities mount when resurfacing and repair are neglected.
"That acts as a overhang on the bond market, just like any liability would," he said.
Concerns come, Dubofsky said, when an entity, or city, must issue new bonds to pay off existing deficits. "That just sinks the city into greater debt," he said. "That would be also bad for the bond rating moving forward."
Dubofsky said the concept is simple: "Would you rather lend money to a city that has a lot of money, a lot of assets, or would you rather lend money to a city that has a lot of unfulfilled liabilities that they're going to have to fulfill?"
Just how much a role infrastructure plays in the determination of bond ratings, however, is unclear, Dubofsky said. Making these bond ratings, he said, depends on the "big picture" of a city's financial position.
Infrastructure Value Down, Councilman Says
Ackerson said the city's infrastructure asset value has been dwindling in recent years.
In 2004, such assets -- which include roads, bridges and sidewalks -- were valued at nearly $230 million. By 2015, the city's asset value was tallied at $82 million, he said.
This depreciating trend comes as the city lays new roads and fails to repair them for years, which has resulted in nearly 27 percent of city maintained roads earning a rating of "at risk" and in need of repair.
The rating tool — known as the pavement composite index — is used by the city's Public Works department to determine which roads are in need of repair immediately.
A spokesman for Public Works did not respond to a request for comment on the depreciating asset value.
Dubofsky said falling assets and mounting liabilities can sometimes gradually affect a city. Other times, he said, "the city can be going along very nicely and all of sudden, the markets wake up and say 'look at this.'"
"And it can come suddenly," he said.
Ackerson's push to put the full surplus into infrastructure repair is an attempt to slice into the deficit, not to address it entirely, he said.
"The budget surplus is money we haven't planned on, it's pennies from heaven, found money," he said. "And when you found money you don't go blow it, you put it towards responsible spending and paying down the deficit. [That] is should be something we should be looking at."
His proposal is up against a proposal from fellow Democrat Marianne Butler of District 15.
Butler, who chairs the council's budget committee, wants to spend about $4 million of the surplus on road repair. But she is also suggesting a chunk of the surplus be funneled to social programming, such as SummerWorks and The Healing Place.
Council president David Yates, a Democrat who represents District 25, acknowledged that city leaders historically have underfunded road and infrastructure repair. He said they need more fiscal attention.
"It's very responsible for us, and we have to be responsible in order to be able to tackle this issue before it gets out of control," he said.
That said, Yates also said he supports allotting some funds to The Healing Place for a planned expansion to help combat opioid addiction.