S&P Bestows Highest Financial Management Recognition To Newtown

By John Voket

Following a trip to the New York City offices of Standard & Poor’s on August 30 ahead of an anticipated refinancing of qualified municipal bonds planned for mid-September, the town was notified it was awarded the rating agency’s top designation for its financial management. Local officials also learned the town is currently positioned favorably for a future rating increase.

As a result, the future refinancing of the bonds, which just a few weeks ago was expected to save taxpayers around $300,000, is now expected to result in about $660,000 in interest savings, including refinancing on part of the town’s most recent bond issue from earlier this year.

Barry J. Bernabe, vice president of the Government Banking Division for Webster Bank — who acts as the town’s primary consultant on bonding matters — said Newtown received its second AA+ rating with a stable outlook.

Mr Bernabe described the affirmation of S&P’s second highest municipal rating designation as being, “great in these times.” In regard to the financial management recognition, S&P upgraded the town’s FMA score from “Good” to “Strong,” which is the highest score possible.

“I think the Financial Management Assessment [FMA] score is a major accomplishment,” Mr Bernabe wrote in a memo following the news. “I think the addition of the five-year budget forecast tool did it! I think this FMA score and [Newtown’s] continued commitment to have a proper fund balance will bring the Town the top rating of AAA.”

Mr Bernabe told The Bee his “five-year forecast” remark was in relation to a presentation made to S&P by town Finance Director Robert Tait, adding that the top FMA designation of “Strong,” has only been assigned to a few towns in Connecticut.

“Typically this top recognition for financial planning is given to larger towns and cities that have entire planning departments and staff,” he said. “I think Bob [Tait] really impressed them when he recognized anticipated issues in relation to Newtown’s operating budget over the next five years.”

Mr Bernabe said the S&P representative he spoke with September 3 said the rating agency’s officials “feel very good about the town’s progress and they will continue to monitor [Newtown’s] finances and if the town can demonstrate growth in the fund balance in the next two to three years — the AAA rating could be a possibility.”

“They were impressed with [Newtown’s] adopted policies and practices,” Mr Bernabe said in his memo of the work done by town officials including Mr Tait and the top elected boards including the Boards of Finance and Selectmen and the Legislative Council. “You are one of a small group of municipalities in Connecticut to have a ‘Strong’ FMA score. The only [other] town I am aware of that has a Strong FMA score is West Hartford.”

At the suggestion of Finance Board Chairman John Kortze, Mr Tait and Mr Bernabe also were able to calculate the difference in interest savings if Newtown was to be awarded a AAA rating, and how much the interest savings would be affected if the town’s bond rating were downgraded.

After checking with S&P, Mr Bernabe reported that if the town suffered a bond rating downgrade of one level, to AA, the current refinancing would result in $90,000 less in savings. Conversely, if the town was bumped up the top bond rating of AAA, it would increase by $90,000 to $100,000.

Finance Board Chairman John Kortze provided documentation that shows between the last bond rating upgrade and the last bond refunding the town received $342,000 in interest savings, $42,000 of which came on the strength of the upgrade. The next planned refunding is expected to save the town $660,000, $90,000 of which comes from the rating.

These are annual numbers, which means the taxpayers will enjoy total savings of just over $1 million every year until these bonds mature.

“Now we have two examples of how the town is aggressively pursuing a better interest rate environment on behalf of the taxpayers, but we’re also enjoying additional savings because of the rating,” Mr Kortze said.

The news of the town’s likely refunding windfall coincidentally came the same day Connecticut Governor M. Jodi Rell said state government will be saving millions of dollars in interest costs because borrowing has been cut nearly in half this fiscal year.

Gov Rell said because the state had a $449 million surplus for the fiscal year that ended June 30, it now plans to borrow about $647 million for the year that began July 1. The state had planned to borrow nearly $1.3 billion for the 2011 year.

The governor said interest costs will drop from $245 million to $121 million.

State law requires the first $140 million of any surplus to go back into the general fund. Gov Rell said she has insisted the rest be used to reduce the borrowing needed to balance the budget, which totals about $19 billion this fiscal year.

Associated Press content was used in this report.