It isn’t often that a city gets a Christmas present! You might think of a gift, a grant or other type
of windfall but in Breezy Point the city got a Christmas present from Standards
and Poor’s. I believe the majority of
people have of heard of this organization and know they are involved in
financial issues but may not understand all that they do. One of the functions they provide is ratings
of municipal securities, bonds.
Governmental units issue bonds for all sorts of public
projects. Everything from hospitals to
bridges to local improvements are financed with bonds. These in Breezy Point have been sewer and
road improvements but we also financed the Public Safety Building with a
municipal bond. This past year we
combined two outstanding bonds into a “refunding issue” which essentially means
that the bonds were refinanced to get a lower interest cost. In doing that the city sought a rating from
Standard and Poor’s. Having a rating
lets the bond buyers better understand the local economy (or risk) that the
buyer assumes in purchasing a bond. At
that time our rating was A+.
Recently with the bankruptcy issues in some cities in California
and more notably in Detroit, bond buyers have become a bit jumpy about
municipal bond issues. No one wants to lose
money on a bond that they felt was adequately secured by the full faith and
taxing ability of the governmental unit.
Rating agencies were taking the heat as they assigned a rating and
perhaps the outcome didn’t reflect the actual situation. With three rating agencies to compete for buyers’
attention they needed to do a better job with this. They decided to change the review criteria. Standard and Poor’s took the lead, closely followed
by Moody’s. With this change in philosophy
and rating criteria the agency has started the process of review of all
governmental units with outstanding debt.
Breezy Point was asked to provide additional information about its
finances as part of the first wave of governmental units being reviewed.
To make the story short the process involved a better
explanation of reserves, investments and liquidly. Cash management was a factor
in how the city operates keeping in mind our ability to pay the bills on a
timely basis. It was a bit tricky in that
the city has established several new policies in how funds are managed. Greater transparency in reserve funding for
capital improvements and a general fund reserve policy was also established to develop
priorities for funding. This created a
better sense of order while also showing the intent of funding.
The Christmas present given us was after review by Standard
and Poor’s, they upgraded our bond rating for the Refunding Bond from A+ to
AA. This is a step up in ratings. This
is a significant benefit to the city in terms of marketability of its bonds and
lower interest rates on future bond issues.
The city has no immediate plans for issuance of new debt.
Merry Christmas!
