Scituate is hoping to save hundreds of thousands of dollars in the next few years in interest costs after receiving a higher financial rating.
According to town officials, the town’s bond rating was increased from AA to AA+ from Standard & Poor’s, one step below the highest financial rating of AAA.
The higher financial rating will enable the town to get lower interest rates when it borrows money, saving money in the long-term.
“It was something that I’m personally very proud of,” said Town Administrator Patricia Vinchesi. “It’s a goal I’ve been working on since I came, to increase the town’s bond rating.”
While town officials has been working toward the goal for several years, they haven’t been able to prove a long-term commitment to financial stability until this year, Vinchesi said.
Overall, Vinchesi said the ultimate factors that enabled the jump was the budget overhaul that’s taken place in the last few years; the institution of revenue and expense forecasting to project future budgets; and the establishment of a rolling five-year capital plan, which has helped fund larger purchases by planning them out over a five-year period.
The town additionally adopted new financial policies and put more money into reserves to ensure the town has a cushion should anything catastrophic occur.
While the bond rating may not mean much to the average resident, Vinchesi said it is of utmost importance.
“In terms when you go out to market and are borrowing $7-8 million every few years, the interest rate that comes with that is additional money, and the lower the interest rate, the more [money] you’re freeing for other services. And the bond rating plays directly into what your interest rate is,” Vinchesi said.
For example, the town recently went to borrow money, anticipating the interest rate to be 3.65 percent. The interest rate eventually came in under 2 percent, which will save hundreds of thousands over the life of the bond.
Especially considering the new middle school the town hopes to build, a renovation of the existing Gates Middle School for a town hall, and the establishment of a public safety facility, the idea of lowering interest could have long-term impacts to the town.
“It’s coming at a good time now as obviously we’re looking at some major infrastructure improvements. When you’re looking at that in a new school, and you’re shaving a percentage/ a percentage and a half off a huge note, that’s huge savings to the taxpayers,” Vinchesi said.
Vinchesi also noted that the town had accomplished this success amongst a bad economy and despite the cost of several recent storms.
“That just speaks to the town’s financial position over the past few years,” Vinchesi said. “It’s been a difficult economy, we’ve been very conservative in our not spending more than we were taking in, which was a challenge in FY08 and FY09 when all excess revenue was going into operating [expenses]. We were able to pay for storm in stabilization and refund with free cash because we’ve done tighter budgeting, and that’s resulted in revenue to go into reserves.”
The passage of a $2.2 million override the town passed in 2011 also went a long way to ensuring the financial stability of the town, Vinchesi said.
And while the next financial goal on paper may be to get to a AAA rating, Vinchesi said getting to AA+ has taken considerable work, and maintaining it comfortably is the true focus.
“Obviously it’s a goal to always be mindful of, and it’s something that we’re going to continue to try to have continuous improvement,” Vinchesi said. “But I believe strongly that the town should get this bond rating based on comparable data, analysis of what other towns who are already AA+, and our level of debt. In that case, I’m happy to take this one for awhile.”