As a community, Collingswood “has been lucky enough over the past 10 years to be getting all kinds of nice press,” says Mayor James Maley.
“A few years ago, the American Planning Association named Haddon Avenue one of the great places in America, the only place they’ve given that designation to in New Jersey,” he says. “The New York Times has written that we’ve done great public partnerships.”
Earlier this month, the Wall Street Journal praised the LumberYard project as the kind of transit-oriented development that “is now one of the fastest-growing areas of the housing market…as developers regroup after the housing and financial crises.”
Yet one voice rises consistently in opposition, Maley says.
“There’s only one incorrect message, and that’s Moody’s [Investors Service],” he says.
Revenue bonds versus general obligation bonds
As recently as May 2, the credit ratings agency named Collingswood and Salem as examples of “how municipalities that guarantee the general obligation or G.O. debt of an enterprise or of another municipality are exposed to additional credit risk.”
“In our view, nonpayment of guaranteed bonds is equivalent to a default on a municipality’s own general obligation bonds,” said Moody’s analyst Josellyn Yousef.
Yousef’s remarks accompanied a report she authored on how G.O. debt in New Jersey—such as that carried by Collingswood—has led directly to Moody’s downgrading the creditworthiness of boroughs that carry it.
That analysis is a slight, yet recent change in the narrative from the credit ratings agency, which for months earlier had insisted upon treating the G.O. bonds as though their repayment were contingent upon revenue generated by the LumberYard project, Maley says.
“A G.O. bond is backed by the full faith and credit of the borough,” Maley says. “Its repayment is based on the borough’s taxing authority. Obviously a G.O. bond is very secure; a revenue bond is not so secure."
The mayor also contends that Moody’s has backed itself into a corner with that assessment, and refuses to admit to “several factual errors” in its ratings adjustment of Collingswood. Among them, he says, are Moody’s depiction of Collingswood as a town losing residents and burning up a $4 million surplus generated by the sale of the Parkview Apartments.
“They had errors about our population declining by 500 people, even though we showed them that we’d wiped out a ton of homes related to Richey Avenue,” Maley says. “They didn’t understand that our surplus was paid down because we gave $150 to every household for four years. They recognize it, but it doesn’t change their analysis. It’s ludicrous.”
According to Moody’s analyst David Jacobson, New Jersey is home to five municipal governments it rates as “speculative”—a warning to investors that their bonds are a risky buy. Fewer than 30 such governments among the 12,000 the agency rates carry that warning sticker.
In addition to Salem and Collingswood, which Moody’s notes in its May 2 release are speculative risks, it also rates Harrison, Irvington and Camden as Ba1 (junk status).
Irvington and Camden both suffer from high unemployment and a low tax base, Jacobson says. Salem has lost money on a boondoggle renovation of one of its landmark buildings. Harrison receives extraordinary special aid from the state of New Jersey as a result of its Red Bull Stadium deal.
Unlike these towns, Maley says, Collingswood has not defaulted on a loan affiliated with the LumberYard project.
“Harrison was what, $50 million that they defaulted on?” he says. “We have never defaulted. We’re only in that group because they made a mistake in evaluating those bonds, and it all goes back to that.”
In resettling the LumberYard debt, Maley says, Collingswood escaped some $4 million of debt and also guaranteed its ownership of the properties yet to be sold there.
“The fact that I negotiated to get $4.5 million worth of assets in return for paying my guarantee, I said, ‘You guys should be giving me a gold star,’” Maley says. “Instead, they misread it, and banged it, and to me, it all rests right there.”
What really burns in this analysis, Maley says, is that the Moody’s rating is something the borough pays for as a service to make its debts more attractive to buyers.
“Moody’s got it wrong and the stuff they’re doing right now is to buttress the fact that they got it wrong,” he says. “We pay for the Moody’s rating. We’re a client! That’s one of the reasons why I’m so annoyed at the way they did this.”
Without any avenue of appeal, Maley says, the borough has pretty much had to take it on the chin. The finalization of contracts to complete work on the LumberYard, however, may provide enough evidence for Moody’s to change its tune.
“My God, Greece has a better rating than we do,” he says. “If they can be shown to be wrong in little Collingswood, then what are people going to say of their credit rating of France?”