Town’s AAA Bond Rating Will Allow Borrowing $7.7 Million At Under 4%
by Connie Sartini
Groton Select Board authorized town officials to put out to bid for general obligation municipal purpose bonds for $7,760,000 to cover costs for the new Senior Center, Fire Department truck, and Lost Lake Fire Suppression System.
This includes $5,045,000 for construction of the new Senior Center, $895,000 for the new Fire Department ladder truck and $1,520,000 for fire suppression at Lost Lake.
Town Treasurer Michael Hartnett told the Board that he anticipated that the interest rate “would be under four percent,” based on the town’s strong AAA bond rating. The bonds will be due on Nov. 15, 2039.
Standard& Poor’s affirmed the AAA Bond Rating for the town. In their statement dated Oct. 30, 2018, S&P wrote, “S&P Global ratings assigned its ‘AAA’ long-term rating to Groton Town, Mass. series 2018 general obligation (GO) municipal-purpose loan bonds. At the same time, we affirmed our ‘AAA’ rating on the town’s outstanding GO debt. The outlook is stable.
“The town’s full-faith-and-credit pledge, subject to limitations of Proposition 2-1/2, secures the series 2018 GO bonds. However, we note that the town voted to exempt a portion of the series 2018 bonds from Proposition 2-1/2 levy limitations. Despite limitations imposed by the Commonwealth levy limit law on a portion of the bonds, we did not make a rating distinction between the limited-tax GO pledge and Groton’s general credit-worthiness because the tax limitation imposed on the town’s ability to raise revenue and the fungibility of those resources is already embedded in our analysis of its financial and economic conditions.
“Groton’s GO debt is eligible to be rated above the sovereign because we believe the town can maintain better credit characteristics than the U.S. in a stress scenario. Under our criteria, titled “Ratings Above the Sovereign: Corporate and Government Ratings published Nov. 19, 2013” Groton has a predominantly locally derived revenue source, with approximately 86.5% of general fund revenue coming from property taxes. The town also has independent taxing authority and independent treasury management from the federal government.
“We understand that town officials intend to use proceeds from the bonds to finance permanently various capital improvement projects.
“The long-term rating reflects Groton’s comprehensive budget development process and emphasis on long-term capital and financial planning, which continues to yield consistent and positive budgetary performance and maintenance of strong budgetary flexibility. At the same time, we believe its pension and OPEB cost profile will remain a fiscal pressure over the long-term, which could compel Groton to make more challenging budget adjustments to realize balanced operations under more constrained economic and fiscal conditions.
“However, we view management’s tight control of operating expenditures and the town’s forecast for favorable local tax base growth trends to continue that will likely support its capacity to raise revenue that alleviates potential increases to retirement cost pressures beyond the outlook period. Therefore, we do not expect Groton’s overall credit quality to diminish in the near term.
“The rating reflects our opinion of the following factors for Groton, specifically its:
• Very strong economy, with access to a broad and diverse metropolitan statistical area (MSA);
• Very strong management, with strong financial policies and practices under our Financial Management Assessment (FMA) methodology;
• Strong budgetary performance, with slight operating surpluses in the general fund and at the total governmental fund level in fiscal 2017;
• Strong budgetary flexibility, with an available fund balance in fiscal 2017 of 14.3% of operating expenditures;
• Very strong liquidity, with total government available cash at 48.1% of total governmental fund expenditures and 10.3x governmental debt service, and access to external liquidity we consider strong;
• Very strong debt and contingent liability position, with debt service carrying charges at 4.7% of expenditures and net direct debt that is 48.5% of total governmental fund revenue, as well as low overall net debt at less than 3% of market value; and
• Strong institutional framework score.”