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The City of Greenville’s financial outlook, issued by S&P Global Ratings recently shifted from stable to negative with the city’s credit rating set at “A-.” 

“This is for the people that are looking to buy the (city’s) bonds,” said Mayor Dexter McLendon. “It’s not sent out like something’s wrong with us. It’s sent because (issuers) have to be open with people that are buying the bonds.”  

The ratings agency is world-renowned for providing financial information and analytics. Ratings range from “AAA,” the highest credit quality, down to “C,” with an additional “D” category for default.

“It would seem to me to be more of, at this point, a warning or a concern as opposed to anything hopeless, at least as it’s showing,” said Daniel Sutter, professor of economics at Troy University. “But it should be a definite concern because of the negative rating. The rating is still in the ‘A’ range. The concern about future declines and specifically the forecast of possible future decline is the bigger issue.”  

The downgrade reflects S&P’s concerns about Greenville’s financial reserves after significant spending on major projects. If faced with a budget deficit, Greenville’s financial position could be further strained, especially after what the agency described as “risky” loan terms to underwrite the Regional Medical Center of Central Alabama (RMCCA).  

The city’s bonds are also linked to financing of the hospital, a critical focus for city leaders. Greenville is making payments to cover the hospital’s debt, but is not financially responsible for the hospital’s day-to-day operations.  

“We always try to be good stewards of our money, but we’ve got a hospital we’re trying to save and we have no regrets about trying to do that,” McLendon added. “I listened to a 911 call the other day with a 2-year-old, and thank God the hospital was open because it saved that 2-year-old’s life.”  

Patrick Trammell, RMCCA CEO, highlighted the broader challenges facing rural hospitals. 

“Recent analysis shows that as high as 55% of Alabama’s 51 rural hospitals are at risk of closure in the near future due to financial and operational pressures, (which) receive some of the lowest reimbursement in the country from Medicare and commercial insurance plans,” he said. “Compared to states that have expanded Medicaid, we have a large number of working poor or otherwise indigent patients, in a coverage gap, who have no health insurance coverage. 

“We end up in most cases absorbing the cost of providing care to these uninsured patients. 

Repayment of loans has already begun, and the hospital is continuously making changes to better serve the community.” 

The S&P report highlighted potential for a further downgrade within the next two years if Greenville’s financial situation worsens. There is a 33% chance the rating could fall due to factors like unexpected revenue shortfalls, increased expenditures or further financial strain related to the hospital’s operations. The rating could improve if Greenville’s financial reserves are strengthened and if the city diversifies its tax base by finding more sources of revenue.

City Clerk Dee Blackmon said Greenville’s current rating places it in a relatively strong financial position.  

“We are still rated ‘A,’ and that ‘A’ means we’re in sound financial health,” Blackmon said. “Roughly 98% of all municipal debt falls within the ‘AA’ and the ‘A’ ratings. The scores go from triple ‘A+’ down to double ‘C,’ so if you look at the range, the city is still in the top range of our debt ratio.”  

The city’s new  general obligation (GO) bonds, rated “A-,” will pay off short-term loans and fund various municipal projects. The bonds are. Greenville has promised to repay them with tax revenues. 

The Alabama Constitution imposes a 20% debt ceiling for municipalities based on the assessed value of all taxable property within the city, something S&P considered in its assessment. The ceiling restricts how much property tax revenue-secured debt municipalities can  incur, and limits how much property tax revenue can be allocated to repay debt. 

Reaching the debt limit, hampers cities from taking on new obligations without first paying down existing debt. Exceeding the debt ceiling would be illegal without specific voter approval.

McLendon said the city’s debt is manageable, noting that a significant portion of the obligation is tied to the hospital. 

“We have $40 million in debt, and $20 million of that is the hospital. So, over half of it is with the hospital,” he said. “But some of that’s even paid back by (the hospital). We don’t have a lot of debt as a city. We have (debt tied to) the hospital now.”  

The hospital debt is being paid through a half-cent sales tax set up specifically to cover the $14 million initial cost, he added. The hospital itself will be responsible for the additional $6 million, ensuring the city isn’t bearing the full financial burden.  

“At this time, the hospital doesn’t expect to request or receive additional funds from the Health Care Authority,” Trammell said. “However, as long as we have Medicare Advantage denying claims and a huge coverage gap in the state, all of our rural hospitals are going to continue to operate under undue pressure. Our goal always is to operate in a self-sustaining fashion.”

Despite concerns raised by the S&P report, city leaders said they remain confident in Greenville’s financial stability. 

“Any new debt that we get is scrutinized by bond attorneys and bankers,” McLendon said. “If our city was not in sound financial shape, these people would not give us money.”