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Despite COVID Challenges, Newtown Maintains ‘Perfect’ Bond Rating



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Since 2014, despite myriad budgetary challenges, pricey capital projects, right-sizing municipal pension assumptions, multiple costly and devastating weather events, and a global pandemic, Newtown’s elected leaders, key department heads, and Finance Director Robert Tait have managed to maintain Newtown’s perfect AAA bond rating.

The latest affirmation and “stable outlook” designation came from the rating agency Standard & Poor’s (S&P), February 18, ahead of the town’s latest round of bonding for local capital projects.

Town bond counsel Barry J. Bernabe of Phoenix Advisors, LLC, said that S&P outlined a number of points contributing to its AAA affirmation, including:

*A very strong economy, with access to a broad and diverse metropolitan statistical area;

*Very strong management, with strong financial policies and practices under the S&P Financial Management Assessment methodology;

*Strong budgetary performance, with operating results that S&P expects could improve in the near term relative to fiscal 2020;

*Strong budgetary flexibility, with an available fund balance in fiscal 2020 of 12.9 percent of operating expenditures;

*Very strong liquidity, with total government available cash at 17.7 percent of total governmental fund expenditures;

*A very strong debt and contingent liability position, with debt service carrying charges at 6.9 percent of expenditures as well as low overall net debt; and

*A strong institutional framework score.

In recent years, a few days ahead of Newtown’s call with the agency, S&P submits a list of questions they plan to address, which is very helpful to local officials.

“It’s good to get the agency’s questions ahead of time. I like it because it gives me a chance to explain the answers to questions they’re asking. It helps me be better prepared for the call,” Tait told The Newtown Bee. “They seem to like it as well, and it has cut down on the amount of time we’re spending on the call, although I’m always happy to take up the entire [scheduled] hour.”

Tait said one of the most significant attributes as noted perennially in the bond agency reports, is Newtown’s consistent practice of maintaining a preferred amount of fund balance and liquid cash on hand. The agency also appreciates how Newtown has codified its best financial management practices into formal written policies and guidelines.

“We’ve been maintaining our financial position and possibly improving it over time,” he said. “We’ve had these policies and we review them as needed, but our fund balance has also been increasing.”

In fact, Newtown’s fund balance has recently exceeded its 12 percent guideline.

“So we’re finding appropriate uses to spend down that excess fund balance,” typically on capital items that would otherwise be bonded with the related and added debt service, or in fortifying the capital nonrecurring fund to support pay-as-you-go options on other smaller capital purchases, the finance director explained.

Another practice viewed as a positive by bond rating agencies was Newtown’s move to a defined benefit contribution plan for town employees’ retirement. Tait said while the number of former staff on the original town pension plan continues to shrink, all new employees are offered participation in the defined contribution plan.

“So we haven’t been getting the kind of pension pressures on the budget you may be seeing in other towns or at the state level,” he said.

Tait said budgeting conservatively has permitted maximizing contributions to the fund balance, and any subsequent rollover to the capital nonrecurring account is saving taxpayers millions in bond interest. Even more savings are generated from occasional bond refunding opportunities, when the timing to do so is appropriate.

Christal Preszler, the deputy director of Newtown’s department of Economic and Community Development, was also on the S&P call and contributed to the pre-call presentation.

“It’s always nice to talk about all the great developments happening in Newtown, and to see how we’re moving the community forward being affirmed by an outside agency,” Preszler said. “But it’s really the taxpayers who are seeing the benefit in the form of all the savings on interest we’ve been getting over the years.”

She said this year, one of the S&P questions targeted how the town was coping with pandemic-related costs. She also reviewed the local economic landscape, progress on commercial development projects, and how Newtown’s workforce is faring.

“If there is anything we could say about COVID, it’s had a positive effect as far as people migrating into town and the state from New York,” Preszler said. “They were also interested to see how the town has been expanding its residential [stock], including new apartment and single family home [starts].”

First Selectman Dan Rosenthal said based on the tenor of the phone review with S&P, he was not surprised by the affirmation of the AAA rating, “but it was still pleasing to hear.”

Rosenthal said he credits Tait and Preszler for the advance work they each did for the S&P review.

“Bob always provides in-depth answers so nothing is left up to chance,” the first selectman said “None of this happens by accident — the town’s fiscal culture has developed from years of hard work by staff and elected officials and support from our residents. It is nice to see the collective effort recognized year over year.”

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