The recent downgrade of Manhattan, Kansas’ issuer and general obligation rating from Aa3 to A1 by Moody’s Ratings underscores a troubling reality for municipalities across the United States. The downgrade, which could lead to further reductions or even complete withdrawals of the rating, is attributed to a combination of delayed financial reporting and deteriorating fiscal health. This decision comes in the wake of a significant delay in filing the city’s fiscal 2022 audited financial report, which was made public nearly 650 days after the close of the financial year on December 31, 2022. Such protracted delays raise significant flags about the financial stewardship of city officials and the governance frameworks in place.
Implications of the Delay
Writing in a report, Moody’s explicitly linked the city’s delayed reporting to its weakened governance structure, highlighting a broader concern that resonates across numerous municipal governments. An informed citizenry requires transparency and timely data to hold public figures accountable; when there are lapses in financial reporting, trust erodes, leaving the community unable to assess the true financial standing of their local government. The situation is exacerbated by the fact that municipal bond audits nationwide have also been experiencing delays. According to a report from the University of Illinois-Chicago and Merritt Research Services, there has been a marked increase in the time required for municipal audits, with completion times rising from 152 days in 2011 to a staggering 168 days in 2022. This trend signals not just a problem for Manhattan, but reflects systemic issues pervasive in municipal financial management.
Moody’s alarmingly noted that Manhattan concluded the fiscal 2022 year with an available fund balance ratio of merely 13.3%, forecasting general fund deficits for 2023 and 2024 that threaten to diminish operational reserves to below 10% of revenue. Such a slim buffer against financial shocks can be precarious for any municipality, making the need for stringent fiscal management and timely reporting all the more urgent. As potential gaps in fiscal health loom, the implications for city services and infrastructure can become dire, limiting the local government’s capacity to engage in community development or respond effectively to immediate needs.
Commitment to Improvement
Responding to Moody’s downgrade, Manhattan City Manager Danielle Dulin reiterated the city’s dedication to restoring its financial standing. Dulin emphasized that the government is committed to meeting the end-of-January deadline for releasing substantially completed financial statements for fiscal 2023. While she noted that the A1 rating still indicates a relatively high-quality bond, the downgrade itself serves as a wake-up call for officials and residents alike. The city is tasked not only with improving financial reporting timelines but also with addressing the underlying causes of its financial distress.
For Manhattan, Missouri, the stakes are incredibly high, particularly as the city is burdened with approximately $290 million in outstanding debt. The challenge of managing this debt in light of a declining credit rating is one that requires astute fiscal leadership. The municipal market’s perception of risk has tangible effects on borrowing costs; as rates rise and investor confidence wanes, cities may find themselves facing even steeper obstacles to accessing capital for essential projects. The fact that a recent $53.4 million debt issuance was rated AA by S&P Global Ratings, driven by Build America Mutual Assurance Company insurance, displays a structural reliance on external financial assurances that could vary in availability.
The case of Manhattan, Kansas, highlights critical lessons in municipal finance—lessons rooted not just in numbers, but in trust, governance, and community engagement. The importance of timely financial reporting cannot be overstated; it serves as a benchmark for accountability while providing the necessary insights required for informed decision-making. As other cities watch this unfolding narrative, it serves as a cautionary tale that underscores the urgency of adopting robust financial oversight and cultivating transparent governance practices that prioritize the long-term fiscal health of municipalities. A collective ambition for improvement could not only restore confidence in Manhattan’s financial management but also set a precedent for others striving to create sustainable, transparent, and accountable municipal governments in an increasingly complex financial landscape.