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LA GRANGE, Ky (WDRB) -- Moody's Investors Service has downgraded the credit rating of the city of La Grange. The city now has junk status, according to the credit rating agency.
Even as a city with steady growth and plenty of promise, La Grange is headed for trouble. La Grange owes millions, thanks to an investment that isn't paying off as planned. Now the unpaid debt is tainting its reputation.
"I was a little sick in my stomach actually when I saw the official word about the rating," said the Executive Director of the Oldham County Chamber of Commerce Deana Epperly Karem.
With the downgrade to junk status, a University of Louisville urban and public affairs professor says the city will most likely have an extremely hard time getting future loans, even if they do come out of debt. "Basically it means that you will have a very hard time borrowing, and investors have no confidence in your ability to repay the debt," said Dr. Steven Koven.
For the Oldham County Chamber of Commerce, it means it will be much harder to attract new business. "It makes La Grange look like it's not a good place to do business when that is not really the case," said Epperly Karem.
The reason behind the downgrade lies in a mostly vacant property along I-71. The city partnered with Oldham County to buy 1,000 acres of land for commercial development eight years ago, yet only one business has moved in. Each entity took out $10 million in bonds for the purchase.
"They borrowed in the anticipation of a future revenue stream," said Koven. "If that revenue stream doesn't come through for whatever reason they have all this debt."
A debt that the mayor says currently totals $11 million for the city alone.
Epperly Karem blames the recession. "Right in the middle of this project, we had a really tough economy, something that nobody saw coming."
Last week, the city council turned down a proposed payroll tax that would have raised enough money to refinance the bonds. Now city officials are looking elsewhere for solutions -- solutions that could include an increase in property taxes, or service cuts.