City's Bond Rating Rises Yet Again in Strong Report from Moody's
Somerville’s bond rating continues its streak of upgrades; Rises to highest ever rating based on City’s strong financial practices, growing economy, healthy reserve levels, diverse tax base, manageable current and projected debt levels
SOMERVILLE – Moody’s has raised the City of Somerville’s bond rating from the City’s highest ever rating, Aa2, to a new high of Aa1, the second highest rating on the agency’s scale and one step from the Aaa rating. In its report, the bond rating agency cited the City’s healthy financial position, strong financial practices, conservative budget management, robust and growing economy, diverse tax base, and healthy reserves.
“This news affects everyone in the community because better bond ratings ultimately make it more affordable for Somerville to make needed investments in community priorities such as schools, roads, public safety facilities, parks, fields, affordable housing, water and sewer, and other important infrastructure,” said Mayor Joseph A. Curtatone. “These types of projects usually require borrowing, and the higher our bond rating, the lower the interest rate we are charged, which saves the City money.
“Basically, it’s like having a high personal credit rating,” added Curtatone. “Lenders see Somerville as well-managed and reliable and give our community better borrowing terms as a result. And like your personal credit rating, it takes diligence, time, and good financial practices to improve it. We’ve been steadily improving city finances and financial management for more than a decade. It’s taken time to get here, but we’ve made it to the second highest rating, and now our community can benefit from that.”
Report notes city’s “well-managed financial position with healthy reserves”
The report issued over the summer specifically cites the City’s “well-managed financial position with healthy reserves,” and notes a stable near-term outlook due to “management’s conservative budgeting and new property tax revenue from ongoing redevelopment.”
Moody’s noted the City’s conservative budgeting and saving practices, which in FY16 yielded an available General Fund balance equal to 25% percent of City revenues, which they noted “is stronger than the commonwealth median for the rating category.” The bond rating agency likewise looked favorably upon the City’s “strong meals and motor vehicles excise taxes, building permits, and turnbacks [unspent funds returned at year’s end] in most departments.”
The Moody’s rating also incorporates a “manageable debt burden” that is expected to increase over the next ten years due to the 10-year Capital Plan, the construction of Somerville High School, and the financing of the MBTA Green Line Extension. The report notes that the “debt burden will remain manageable given self-supporting water and sewer funds, debt exclusion for the High School, and expected tax base growth that will generate new tax revenue to support debt service”.
A Favorable View of the Somerville Economy
Moody’s has a favorable view of the Somerville economy, noting in its report that “the city experienced seven consecutive years of assessed value growth including a strong 13.1% in fiscal 2017 growth (compared to fiscal year 2016), which is the third largest increase of any municipality in the Commonwealth.” New development in Assembly Row and pending development in Union Square were cited as specific drivers of new growth that contribute to the favorable rating. (New growth is the value of new construction and the value added to existing homes and buildings by improvements.)
In FY17, Somerville realized $291.9 million in new growth valuation, more than any other year in its history. Development in Somerville is guided by SomerVision, the City’s 20-year comprehensive plan developed over more than two years by the community to codify the community’s goals and values such as decreasing residential taxes by generating new commercial taxes, creating housing with a range of affordability, fostering green and sustainable development, expanding public green space and walkable streetscapes, and creating quality jobs for our workforce.
“As the City continues investing in projects that improve our community, our higher bond ratings will ensure that it costs taxpayers less,” said City Finance Director Edward Bean. “We are maximizing every tax dollar through our conservative budgeting approach, continuing to offer more services than most cities, and strategically investing in projects that improve our quality of life, while our per capita spending remains lower than most cities and towns in the state. Moody’s upgrade of our bond rating is a testament to the City’s strategy.”