The municipality of Marion had planned to finance a new $10 million firehouse with a bond deal later this year, but that project and others are on pause because the city north of Columbus, Ohio, doesn’t have a credit rating.
It was among the 64 local governments and utility systems that S&P Global Ratings withdrew ratings for this month for failing to file financial information on time. In March, the company put Marion and 148 other entities on a negative credit watch.
The withdrawal is “catastrophic,” said Miranda Meginness, Marion’s auditor. “It’s hard for us to figure out how to go forward.”
A growing shortage of accountants has exacerbated issues for Marion and plagued dozens of cities and counties across the US. Marion saw its general obligation debt rating downgraded two notches in June and has struggled to file its financials on time. Other municipalities have recently seen their bond ratings deteriorate or disappear, threatening their ability to finance projects and borrow at affordable interest rates.
Investors are reliant on ratings and need up-to-date information on their holdings. During times of economic uncertainty, investors pay even more attention to underlying credit because any issues can drive bond performance, said Jonathan Mondillo, head of North American fixed income at investment company abrdn.
Even high-quality municipalities had their ratings dropped. Dellwood, Missouri, a city north of St. Louis with a population of 5,000 and a full-time municipal staff of 11, lost its A-rating from S&P. City Administrator Terry Wilson said the cause was a backlog of work due to staffing issues at the city’s external auditing firm.
Fortunately for Dellwood, it doesn’t have immediate borrowing plans and expects to have its rating reinstated after its next audit in about six months, Wilson said, adding that the city is searching for a new auditor.
“We are facing a talent shortage — there is no doubt about that,” said Emily Brock, director of the Government Finance Officers Association’s Federal Liaison Center, pointing to a lack of staff in local governments as well as external accounting and audit firms.
‘Can’t Find People’
Knuckols, Duvall & Hallum, the auditor for the Texas city of Hallsville, only recently filled two positions that were open since the pandemic began, according to Mike Hallum, a CPA at the firm.
“Most of the accounting firms I talk to down here in the South are in the same deal — they can’t find people,” he said, adding that there are fewer graduates who want to go into public accounting.
Hallum’s firm is still working on Hallsville’s disclosures. The city, east of Dallas, was among the issuers that lost its S&P rating.
“We are trying to get in compliance and do what we can to fix them up. It’s not something we’re happy about, it’s just part of the times,” Hallum said.
“We’re sound financially, it’s just the paperwork,” said Faron Cain, finance director of Hallsville.
A 2021 trend report from the American Institute of CPAs shows a shortage of certified public accountants with fewer students graduating with accounting degrees. The dearth of state and local government finance workers has grown since 2019, according to a separate report published in September by the GFOA. Worker demand in 2022, measured by online job postings, was up compared to 2019, and nearly a third of incumbent workers will be retirement age within 10 years.
Alexandria, Virginia, is seeing that firsthand. The city wasn’t among the municipalities that had its rating withdrawn, but its Director of Finance Kendel Taylor said the average age of her 110-person department is 48, and she anticipates challenges replacing staff when they retire. She currently has 16 vacancies, some of which could be open for years.
The issue is a profession faced with a stagnant pipeline and responsibilities that are growing in complexity as government accounting standards are updated, Taylor said.
Accounting “has a nerdy reputation — that you are in a room, staring at a spreadsheet — but in truth, you are behind the scenes of everything a government does,” she said.
By Nic Querolo / Bloomberg