Santa Fe’s bond ratings at risk due to late audits

City has not yet filed 2021 financial statements and may not do so until June

The city of Santa Fe could lose its favorable bond rating from a major credit rating agency if it does not provide audited financial statements from fiscal year 2021 by mid-April.

The city, which has struggled to complete audits on time for several years, currently has an “AA” bond rating from S&P Global Ratings, but on Monday, the agency placed Santa Fe on a “CreditWatch Negative.” “AA” is the second-highest rating possible. “AAA” is the best. The higher the bond ratings, the better the terms the city can get when borrowing money.

State Auditor Joe Maestas, in his first months as the state auditor, said other credit rating agencies, such as Fitch Group and Moody’s Investor Services, could follow suit.

“This could be catastrophic in terms of all the legal instruments the city currently operates,” he said.

Maestas hand-delivered a packet of information on the the city’s rating status to Santa Fe’s legislative delegation Friday at the Capital.

“As legislative representatives that collectively represent the City of Santa Fe, it is important for you all to have this information,” he wrote in a letter inside the packet, which also included a quarterly status report from city Finance Director Emily Oster and Maestas’ response to the report.

He said he plans to meet with officials from the state Department of Finance and Administration to discuss the city’s financial issues.

Maestas, a former Santa Fe city councilor, also wrote in the letter that the audit for fiscal year 2022 might not be finished and submitted to his office by late June, the city’s self-imposed deadline..

City officials could not be reached for comment Friday night.

The city’s fiscal year runs from July 1 to June 30 and is named for the year in which it ends. That means fiscal year 21 ended June 30, 2021, and fiscal year 22 ended June 30, 2022.

City officials announced a goal in October 2022 of submitting both audit reports by June 30.

In an email to city councilors on Thursday, Oster wrote S&P Global Ratings is requesting audited financial statements from fiscal year 21. She wrote the city has provided unaudited 2021 fiscal year financial statements and continues to work with external auditors to finish the ’21 fiscal

year audit.

“The S&P action does not impact the City’s current daily operations, including the development of the operating budget for the upcoming Fiscal Year 2024, which begins July 1, 2023,” Oster wrote. “Although the City plans to issue additional bonds in the future to fund infrastructure and capital improvement projects, these are long-term needs. The current interest rate environment has increased the cost of borrowing significantly, making it an unfavorable time to issue new bonds.”

In the email, Oster wrote the city’s estimated completion date for the fiscal year 21 audit was June 30, but she did not give a date for the fiscal year 22 audit.

In a quarterly status report and a letter to Maestas, both dated Wednesday, Oster outlined efforts the city was making to meet deadlines.

She wrote the city’s auditor aims to complete the FY22 audit — which was due in December 2022 — by June 30, “but the timeline is subject to change contingent upon the progression of the FY21 audit and timing of requested audit documentation.”

The city currently has about $10 million in capital outlay funding being withheld, with another $13 million likely to be withheld after the legislative session, due to late audit reports, Maestas wrote.