Mike Villarreal kicks of his mayoral campaign in November 2014. Photo by Al Rendon.
Mike Villarreal kicks of his mayoral campaign. Photo by Al Rendon.

The City of San Antonio’s stellar bond rating is something to be proud of – and protected.

Our AAA credit rating tells bond buyers that the risk of San Antonio defaulting on its debt is extremely low. In return for that security, investors charge us low interest rates when we issue bonds. In other words, we save money – serious money.

At today’s rates, a drop from AAA to AA would cost us about $12 million on $600 million worth of new 20-year-term bonds – a bond package similar to what the city issued in 2012. That interest expense would have been greater than the cost of recent intersection upgrades in the Medical Center, or the street improvements to Hardy Oak or Redland Road South. The more money we spend on interest, the less we have available for such projects.

The cost of a credit-rating drop may soon more than double. Why? Because watchers of the Federal Reserve Board of Governors – where I took my first job after college – expect them to raise U.S. interest rates. When rates rise the cost difference between an AAA and AA increases. If that happens, when the city issues its next major bond in 2017, the cost of dropping from an AAA to an AA would be closer to $25 million.

Mayoral candidate Mike Villarreal addresses media outside City Hall. Photo by Iris Dimmick.
Mayoral candidate Mike Villarreal addresses media outside City Hall. Photo by Iris Dimmick.

My training from Texas A&M and Harvard universities is in economics and statistics. I worked as an investment banker in public finance for more than a decade, helping cities across the country sell bonds for public improvements. So I can tell you from experience that our credit rating is rare and worth defending. In fact, we are the only city our size or larger with an AAA rating from all three rating agencies – an achievement in fiscal health that City Manager Sheryl Sculley deserves credit for.

However, today, our city’s AAA status is at risk.

Moody’s Investors Service, one of the big three credit-rating agencies, issued a report on San Antonio last July that shows why the city is held in such high regard. It noted our “conservative budget assumptions,” “strengthened financial policies,” and “strong and vibrant economy.” But the report also highlighted a looming problem: “Operating pressures associated with nearly 70% of (general-fund) expenditures for first responders indicative of a large population and demand for services.”

Two months before the City Council adopted this year’s budget, Moody’s observed: “Right now, the city faces a $27.4 million gap in fiscal year 2015 that is expected to be closed with the combination of department cuts and savings from the ongoing negotiations with the public safety group.”

But it wasn’t closed. The city banked on more than $14 million worth of savings to result from renegotiated police and fire union contracts. An impasse between city leaders and police and fire unions meant the savings never materialized. To make up for the shortfall, a fractured City Council voted in November to move funds out of street maintenance and police and fire operations. The unions accused Sculley of gamesmanship, of making it appear to the public that they were responsible for cuts to basic services.

In November, I recommended hiring an actuary to provide an independent-third party analysis to put to rest the dispute over the cost of police and fire protection. The city says it is two of every three dollars in the general fund. It also estimates that by the year 2031, every dollar in our general fund will go toward public safety. Police and fire challenge the budget assumptions behind these estimates. They also say their costs are stable. Both parties can’t be correct.

Whatever the real cost, however, police officers and firefighters should agree to pay for some portion of their health care costs.

First responders do some of the hardest, most essential work in our city – they keep us safe. Because of the danger police officers and firefighters take on to protect life and property, they deserve strong benefits packages, including free life insurance and low-cost, first-rate health insurance for themselves and their families. But free medical care is not sustainable, nor can any employee hope for such a deal in today’s economy.

We must negotiate contracts that honor police and firefighters for their service, allow us to compete nationally for the best talent, and are financially sustainable. What we spend on public safety should rise no faster than the revenue that feeds our general fund. The alternative would harm our city’s ability to keep us safe and weaken our standing with the bond markets, which finance our street and drainage projects and other major improvements. That would be a costly mistake. It’s time to make a deal.

I’m confident we can remain a great place to raise a family as well as the AAA-rated envy of all big cities in the United States.

*Featured/top image: Mike Villarreal kicks of his mayoral campaign. Photo by Al Rendon.

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For all coverage of the San Antonio police and fire union contracts, click here.

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Mike Villarreal

Mike Villarreal is a former state representative and founding director of the Institute on Urban Education at the University of Texas at San Antonio.