Max Grossman: About a New Bond Rating for the City

by Max Grossman

Luisa Barrios of KTSM 9 News broke the “news” on Thursday that the Kroll Bond Rating Agency (KBRA), which promotes itself as a full-service credit rating agency registered with the U.S. Securities and Exchange Commission, has “upgraded” the bond rating of the City of El Paso from AA to AA+.

It is just like KTSM, which is best known for reporting car accidents, homicides, and the weather, to get this completely wrong.

The Kroll Bond Rating Agency, which few have even heard of, was founded by New York businessman Jules Kroll in 2009 in a bid to break into the bond rating business, which has always been dominated by the Big Three—Fitch, Moody’s and Standard & Poor’s—all of which are more than one century old.

So in recent years KBRA has been assigning bond ratings to American cities, and now they have assigned, for the first time, a rating to the City of El Paso.

Therefore, there is no bond rating “upgrade” because KBRA has never rated our City before!

Second, each credit rating agency has its own metrics and algorithms, and so the fact that the new AA+ rating seems higher than the ratings of the Big Three is totally meaningless.

Third, in recent years KBRA has been mired in scandal. In 2020, the Wall Street Journal, among many other national media outlets, reported that KBRA paid a settlement of $2 million to the SEC “for violating rules to make credit ratings accurate.” The deal came “amid rising concerns over rosy grades given out by ratings firms on tens of billions of bond deals.”

How much credibility should we give to a controversial upstart that claims our City has “conservative budget practices” when we have broken the state record for non-voter-approved-debt per capita and have the highest property tax among major Texas cities?

DID GONZALEZ TALK TO KBRA?

And by the way, it is highly suspicious that KBRA claims El Paso’s “Conservative budget practices have supported increasing financial flexibility since 2014.” That just happens to be the year that Tommy Gonzalez was hired! So KBRA thinks El Paso has embraced conservative financial principles only since Gonzalez assumed office nine years ago? Did one of their staff meet him for a drink in a bar somewhere?

Excuse me, but something does not smell right.

EL PASO TIMES ALSO GETS IT WRONG

The El Paso Times published its own story the day after the KTSM report, repeating the same City talking points, complete with giddy quotes from Tommy Gonzalez, CFO Robert Cortinas, and Rep. Cassandra Hernandez.

Hernandez actually told reporter Adam Powell with a straight face that “together we have achieved millions of dollars of savings for taxpayers at a time of economic uncertainty.” This comes from a career politician who has voted for every single property tax hike and CO that has come across her desk!

Gonzalez and Cortinas even claim that the KBRA “upgrade” could result in more favorable interest rates for future City borrowing, saving us as much as $20 million.

Pleeeease. Time to make a run to CVS for some Alka-Seltzer and Xanax.

Only if Fitch, Moody’s or Standard & Poor’s upgrades its bond rating should our City be celebrating and issuing news releases.

Until such time, we should all continue to worry, a lot, about our bond ratings going forward.