Giant warehouse won't keep this town from going broke

Moody's Investors Service has cut its credit rating for general-obligation debt issued by Middletown, Delaware's fourth-largest town with nearly 20,000 people, to A2 from A1, and is threatening to cut it again, due to Middletowns's "challenged financial position" -- despite the fact the town is home to a brand new warehouse employing 850 fulltime workers and more than 1,000 temporary workers, among other development the town elders have drawn to the former farm-country center in recent years.

Middletown owes $43 million to investors, including $21 million in debt rated by Moody's. Analyst Vanessa Youngs wrote that Middletown is squeezed between "significant population growth" and a "limited tax base," and suffers from high debt levels relative to the population. Middletown gave Amazon a $1 million tax rebate, and the state of Delaware (which charges no sales tax, a nice advantage for retailers) gave $7 million+ in state grants, to attract the $90 million distribution center in competition with rival states like New Jersey last year.

"Financial operations will remain pressured in the near term," as Middletown spends more on needed capital projects, Young added. The town needs to boost taxes or fees, and set aside more money for rising expenses -- or its ratings will be cut again. Lower ratings raise doubts among investors as to whether a town pay its debts; that drives up borrowing costs because investors will demand more interest in exchange for buying Middletown's riskier bonds.

Middletown's spokesperson didn't return a call seeking an explanation for the town's failure to turn its business growth into stable town finances.