Credit woes hit towns
Bond ratings dip as cash shrinks
Declines in state aid and local revenues have forced many communities south of Boston to dip into their cash reserves to help pay for operating expenses. But in doing so, some have dug themselves deeper into a fiscal hole.
Some municipalities that have depleted their rainy-day funds have seen their credit ratings downgraded by the bond-rating houses, and consequently will have to spend more if they borrow money.
“It’s something for people purchasing municipal bonds to look at and decide the ability of a municipality to repay the loans,’’ said John Robertson, deputy legislative director of the Massachusetts Municipal Association.
Lower credit ratings typically result in higher interest rates when it comes to bankrolling capital projects, because communities with little financial flexibility are considered greater risks.
Such is the case in Bridgewater, where several proposed tax increases for operational budgets have failed and savings accounts have been stripped. According to the state Department of Revenue’s records, Bridgewater was $50,000 in the red as of July.
Moody’s Investors Service notified the town in August that it was lowering its credit rating, putting it at the bottom of the list among municipalities south of Boston. In fact, Lawrence is the only community in the state with a worse bond rating from Moody’s, and Bridgewater shares its Baa2 designation with only three other communities statewide: Orange, Pelham, and Springfield.
In its letter to Bridgewater officials, Moody’s said the downgrade also reflected the town’s current lack of financial leadership. Bridgewater has an interim municipal administrator and no town treasurer and collector - the assistant treasurer and collector will fill in until next April’s election. Voters had also refused to fund outside audits of the town’s books in the past few years, which Moody’s viewed as neglect of proper financial oversight.
The bond-rating house noted Bridgewater is currently carrying $24 million in long-term debt.
Bridgewater Selectman Michael Demos said officials are working hard to improve the town’s credit rating. “We just put $216,000 in the stabilization fund at the September Special Town Meeting, and we made $2.3 million in very painful cuts at the last Annual Town Meeting,’’ he said.
Town Meeting also recently approved outside audits of the town’s books, going back to 2007. “They have finished 2007 and 2008, and they have begun working on 2009,’’ Demos said. “That will go a long way toward helping to improve our bond rating.’’
Neighboring Rockland, with a rating of Baa1, just a small step above Bridgewater’s, is also working hard to raise its standing, said Town Manager Allan Chiocca. The town could issue bonds on an $87 million school building project within the next few years, he said, and could use a better rating to reduce borrowing costs.
Contributing to Rockland’s low credit rating is the town’s lack of a stabilization fund. But while the community has had a long history of rejecting tax increases to support operational budgets, voters last June bucked that trend, approving $2.8 million in overrides to help schools and other services.
Rockland Town Treasurer Karen Sepeck said the town helped its lackluster bond rating in 2006, when it borrowed money for its most recent large project, by buying bond insurance. A bond that has private insurance carries little risk, since the insurer agrees to cover principal and interest if the community defaults. “But that’s an additional cost for us,’’ Sepeck said, though she and other officials could not specify that cost.
Andrew Ravens, a spokesman for Eastern Bank in Boston, which Rockland uses when it goes out to bond, said he wasn’t sure whether the town saved by having bond insurance. “It’s very difficult to put a price on it because things are so volatile in the bond market right now,’’ he said.
Raynham is another town concerned about its credit rating, which fell to A3 in 2008 from A2, according to Moody’s. The town currently is not entering any long-term borrowing, so it has yet to feel the impact of the lowered rating, said town Treasurer Linda King.
“The last bond was issued in 2007 for $8.8 million to cover several projects,’’ King said. “We still had our A2 rating at the time, and we were given an interest rate of 4 percent.’’
Some municipalities, meanwhile, continue to enjoy favorable ratings. Hingham, for example, holds a top bond rating from all three investor services - Moody’s, Fitch, and Standard & Poor’s. Town Treasurer Jean Montgomery said the excellent rating allowed the town to take advantage of the current low interest rates just last week.
Montgomery’s office refinanced a $3.7 million bond from 1998 that still had nine years of repayment. The new bond carries an interest rate of just over 2 percent, which will trim $35,000 off yearly payments. “We will save $315,000 total,’’ Montgomery said.
Hingham also closed on a 20-year loan for $38 million last week, and secured an interest rate of 3.37 percent, Montgomery said. “That’s a very good interest rate.’’
