The competitive rate came after Standard & Poor’s reaffirmed West Hartford’s ‘AAA’ rating, while Moody’s Investor Services, which changed its rating metrics in late 2022, assigned a ‘Aa1’ rating.
By Ronni Newton
The Town of West Hartford sold $15 million of general obligation bonds Thursday morning, obtaining a very competitive rate of 3.04% True Interest Cost (TIC) for the offering after receiving 16 bids, Town Manager Rick Ledwith said.
The general obligation bonds will be used to fund projects in the town’s capital improvement program, including updates to streets, stormwater management, and investments in schools and other municipal buildings including security.
Town officials said the rates were the best-available at the time of sale, and “an excellent indication of the town’s strong financial position and AAA status.”
In advance of the offering, the town had sought ratings from the two agencies through which it has been rated for decades – Standard & Poor’s and Moody’s Investor Services. While S&P reaffirmed the “AAA” rating the town has held since 1974, Moody’s downgraded the town a notch from its top rating of “Aaa” to “Aa1,” in accordance with new rating metrics the agency adopted in late 202
According to Ledwith, the town’s financial advisors said the action by Moody’s did not negatively impact the town’s bond offering. “It was a very active market today,” he told We-Ha.com Thursday, and the results exceeded expectations. Attempting to meet the new criteria established by Moody’s to obtain the agency’s top rating, however, would have meant adding roughly $20 million to the reserve fund this year – which would have added 3 mills to the mill rate and led to a property tax increase of roughly 7% just to meet that expense.
Even if there had been any additional debt service cost associated with the lower rating from Moody’s, the actual financial impact would have been minimal, and at most added a few thousand dollars a year to the town’s overall expenses over the course of 20 years. In comparison, boosting the fund balance to the level Moody’s desires would be “a monumental difference” in cost to all taxpayers, Ledwith said.
“West Hartford has been the recipient of the highest credit ratings from both Standard & Poor’s and Moody’s for many decades, a distinction that reflects the town’s strong fiscal management and strong year over year financial positions,” Mayor Shari Cantor said in a statement. “And although our unreserved fund balance is 9.2% and growing incrementally, we have unrestricted town wide reserves of 24.4%. Our financial stability is significantly improved by fully funding our pension fund with Pension Obligation Bonds, stabilizing town pension contributions and adding to our unrestricted reserves by an additional 9% for a pension reserve fund.”
S&P, in assigning its top rating, noted that it was a reflection of “West Hartford’s strong and diverse tax base; strong budgeting framework and imbedded financial policies and practices; and consistent budgetary performance over the past decade and maintenance of very healthy reserves and liquidity.” They also cited as a positive measure the town’s 2021 decision to issue pension obligation bonds as a method of addressing legacy unfunded actually accrued liabilities in the pension fund and stabilizing fixed costs.
Moody’s notified West Hartford officials in November 2022 that it would be conducting its review of the town in conjunction with its newly-released and revised “U.S. Cities and Counties” rating methodology. Although Moody’s cited the town’s financial ratios as stable, they determined they were lower than the typical rating for a “Aaa” community according to their guidelines. Moody’s specifically cited the town’s General Fund Balance ratio of 9.2% as being significantly lower than the 15% Moody’s now requires “Aaa” communities to maintain.
With unanimous support, the Town Council voted on Feb. 14 to amend the town’s Fund Balance Policy to allocate one-third of future annual surpluses to the Fund Balance, a policy which is intended to increase the town’s ratio to 16% over time. Under the newly-revised Fund Balance Policy, surplus funds will first be applied to maintain the current unreserved fund balance ratio. After one-third of any surplus is applied to boost the fund balance, the remainder of any surplus will be used to bolster reserves in the Capital Non-Recurring Fund, Utility Services Fund, and Risk Management Fund.
Although Moody’s positively noted the improvement, as well as the town’s “conservative budget practices and formal financial policies,” they remarked that the ratio still remains too low for the town to receive a Aaa rating.
“We have a historically high and robust fund balance and with our new fund balance policy we can build on the fund balance without further taxing our residents to do so,” Cantor said. “West Hartford is unique to other highly-rated communities in its vibrancy, diversity, commitment to sustainability, and inclusivity. We have excellent public schools and outstanding public safety and we are repeatedly recognized as one of the best places in our state and country to live, work and play.”
“The affirmation of our AAA credit rating from Standard & Poor’s is a recognition of our continued sound financial management, and Moody’s Aa1 rating was simply based on Moody’s raising their scoring metrics in certain categories that moved us from a Aaa rating to a Aa1 rating,” said Chief Financial Officer Peter Privitera in a statement.
Many in the community may not realize is that the town hires the rating agencies to issue their reports in advance of bond sales. Standard & Poor’s, along with Moody’s, have been viewed as the top-of-the-line rating agencies but there are other companies, including Fitch and AM Best, that are also highly-regarded for their ratings of municipalities. Several years ago Stamford’s rating from Moody’s dropped – and the city then dropped Moody’s. Stamford continues to be a triple-A rated community by Standard & Poor’s, and by their new rating agency, Fitch.
While technically the fund balance is set aside for a “rainy day,” Moody’s would not expect the town to use any of the funds and if they are used, the town would be at risk of a downgrade. In fact the only time that West Hartford touched its reserve fund was for the extraordinary cleanup expenses associated with the October 2012 snowstorm. Costs were later reimbursed by FEMA, but in the interim, Moody’s downgraded West Hartford’s outlook to “negative.” In the fall of 2017, amid a state budget impasse, Moody’s also issued a “negative” outlook to 29 Connecticut municipalities or school districts, including West Hartford, due to reliance on state funding.
Moody’s provided We-Ha.com with press releases that were issued to the Town of West Hartford regarding the change in the town’s bond rating, but did not respond to a direct question about the rationale behind the recent change in the company’s methodology – a change that might be compared to moving the goalpost without warning when a team is about to score, or a teacher deciding that a test grade of 97, rather than 90, would now be needed to earn a grade of A. The change by Moody’s was made without prior notification to municipalities in November 2022.
There were 93 municipalities that had been placed on review in November for possible downgrade, but Moody’s also did not provide We-Ha.com with details about the final decision on the ratings or locations of those other communities.
Moody’s report did note that its Aa1 long term rating “further reflects Moody’s view of West Hartford’s robust economy highlighted by strong ongoing development; healthy resident income; rapidly growing grand list and a beneficial location within the greater Hartford metropolitan statistical area (MSA); and strong management team that has implemented prudent financial policies and practices.”
“The AAA credit rating from Standard & Poor’s and the Aa1 credit rating Moody’s reflects our vibrant and growing economy and, conservative financial strategies, and will allow us to reinvest in our community with a variety of capital projects,” Ledwith said.
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