You may have caught wind of this news already through comments/letters on the blog.
On Friday, the Town announced that Standard and Poor’s upgraded Southborough’s bond rating to the highest level: AAA.
It’s a status shared by only 12% of municipalities in the state.
In April 2014, voters approved a $3,600,000 Public Works project to replace a trouble-prone water main along Route 9.* The bond rating review was part of the town’s steps to finance that project.
Town Administrator Mark Purple tells me this was the first time a Town management team sat down in person with analysts instead of holding a conference call. Prior to S&P’s announcement, he updated the Board of Selectmen on that meeting and the review.
Last Tuesday, the TA told the board that S&P was considering the AAA rating. But he warned members that it was unlikely, since the Town doesn’t keep a stabilization fund.
Rooney, who participated in the sit down, told the board:
they said that a AAA is reserved for those cities and towns that are ‘bulletproof’ and part of the bulletproof vest, if you will, is a large savings account
Rooney and Purple emphasized with S&P reps that the Town’s decision not to have the fund is political, not financially driven. (In past Town Meetings, voters have debated the issue and opted not to have a reserve fund.)
Purple said he and Treasurer Brian Ballantine drove the point home explaining that the Town incorporated a $220,000/year settlement ruling into its operational budget “not to the detriment of any budgets”, fully funded its capital, increased its obligation to OPEB $250,000, and remained under “the 2 1/2”, which increased its Levy capacity. He summed up:
My comment to them was, “if that’s not bulletproof, I need a better example.”
Apparently, S&P listened. The summary analysis explaining the upgrade from AA+ stated:
The town’s strong management conditions with good financial management policies and practices provides further rating stability. We believe management will continue to make the necessary budget adjustments to maintain an adequate budgetary performance, and strong budgetary flexibility. As such, we do not expect to change the rating within the two-year parameter of the outlook period.
Purple expects the higher bond rating to translate into lower interest costs. This week the Town is receiving bids on the bond this week. Selectmen are scheduled to award the winning bid next Tuesday.
In Purple’s press release, he shared the credit for the improved rating with many, thanking Town personnel and committee members. You can read that here.
For the S&P ratings service summary of our Town’s obligation, click here.
*Wondering what this project we are borrowing to fund is? It was under Article 9 of the 2014 Annual Town Meeting:
This request is part of the town’s Water System Master Plan. Southborough’s water system consultant is currently developing the specifications for replacement of the 1931, unlined cast iron water main that generally runs along the east bound, high speed lane on Route 9 from Breakneck Hill Road to its end near Brook Lane. Breaks in this main, near Oak Hill Road, in January 2013 and in January 2014 caused significant back-ups on Route 9 and hours of overtime. This main is prone to breaking due to its age and its material. The replacement project will replace the main by installing 12 inch cement lined ductile iron pipe in the breakdown and shoulder of Route 9 eastbound. There will also be new 8 inch main installed on the westbound side of Route 9 from Pleasant Street to the reservoir. The DPW has brought this project forward this year due to MassDOT plans to pave Route 9 from Breakneck Hill Road to the Framingham Town Line starting in spring 2016, and this should provide the Town with some cost savings on roadway rehabilitation.
If you read the report, it bolsters the case for the irrelevance of the stabilization fund in credit decisions.
The principal focus of the report is on the health of the local economy both residential and commercial. We get credit for solid financial management but the strength of the underlying tax base is the real reason for the upgrade.
This makes perfect sense. When we vote to borrow we are really voting to authorize the property taxes to repay the loan. That is why it takes 2/3 at TM and a majority at the polls, we are voting new taxes.
The credit decision then is quite rationally based on the risks to the collection of the taxes. A very healthy tax base, which we have, means that those risks are minimized.
The town deserves credit for solid management but the residents and businesses in town are the real prize. Give yourselves a pat on the back as well.
This is great news for our town. Good work to all involved.
First of all a congratulations is due to Mark Purple, Brian Ballantine, Selectman Rooney and any others who helped get this done. The upgraded rating is significantly due, I believe, to their better management presentation than we were able to muster in years past.
There is a delicious irony here. A decade ago we had far higher cash reserves, mostly in stabilization funds, and a good but slightly lower bond rating. We were told that if we lowered stabilization funds our bond rating would go down. However, that story didn’t square with any of the actual data from ratings of more than 100 other Towns, that showed no correlation between such cash reserves and actual bond ratings. The data showed that if you were a wealthy community you had a good bond rating, which we had. Furthermore, for voters to leave their money in Town coffers for the hope of getting a better bond rating could never make any economic sense at all: it’s a guaranteed money loser for residents, too expensive, even if you get a better rating. So Town Meeting actually lowered stabilization funds from around $4 million to $500,000, delivering millions in reduced taxation to residents. Not only did our bond rating never decline from that action, it has now gone up. Have cake, and eat it too. Why?
First of all our average income position was high enough, all along, to possibly support the new AAA rating, and resident income is what the data shows they mainly use. But, we formerly were clinging to an old-style of governmental organization: a “strong” and small Board of Selectmen, and a “weak” Town Administrator position, as defined in our old bylaw. Now we have changed to a stronger Town Administrator and a 5 person board. Regardless of whether one likes the older style or our new, the old was long out of fashion in Massachusetts towns such as ours, and these ratings agencies are affected by management fashions. We “look professional” now.
But, in the end, the more fashionable management structure must be sold by the professionals we have in place. Not necessarily easy. Congratulations to our team for doing so.