Moody’s Expected To Render Bond Rating Decision By Next Week

By John Voket

It is a scenario fraught with clichés: fingers are crossed, hopes are high, and everyone is waiting for the other shoe to drop.

Following a trip to New York December 13 to make a presentation to Moody’s Investor’s Service, the agency that rates Newtown’s creditworthiness, local officials must now wait to hear whether Newtown’s bond rating will be increased from AA2 to AA1, if it will remain unchanged, or if, for some unanticipated reason, it will be reduced.

The latter scenario seems remote, because the town received a “positive outlook” for a rating increase from Moody’s representatives during the last reporting cycle. In addition, several new measures have been enacted since the last visit resulting from town charter changes, refinements that Moody’s representatives suggested would be required before awarding a coveted upgrade.

Newtown Finance Director Robert Tait told The Newtown Bee, taxpayers seem to be supporting the measures required to advance the town’s bond rating.

“As far as requesting an upgrade, you have to sell it. So it’s a good thing that we changed the charter, and that was supported in a referendum,” he said. “You want taxpayers to be on board, and according to Moody’s, the single vote passage of the municipal budget is also evidence of the taxpayers understanding.”

Mr Tait previously told The Bee that if a bond rating increase to AA1 is granted, taxpayers would enjoy almost a quarter million dollars in savings over borrowing at the current rating level on the next bond issuance, which is imminent. By waiting until the new year, Mr Tait was well prepared for the latest upgrade pitch with an administrative policy for the fund balance. He was accompanied to the meeting by First Selectman Joe Borst, Economic and Community Development Director Elizabeth Stocker, and a representative from Webster Bank, the institution that administers Newtown’s bond offerings.

The finance director also brought a completed municipal audit demonstrating that Newtown has conformed to all suggested practices the rating agency issued in a “positive outlook” before the last bond issue.

“In the positive outlook, Moody’s says the town maintains ‘financial flexibility.’ But up until the charter change, Newtown was building [financial] flexibility into a capital nonrecurring fund,” Mr Tait said previously. “Now we can show them Newtown maintains an unreserved fund balance in the general fund.”

Although Moody’s delivered several rating upgrades to Newtown in fairly quick succession over the past decade, bringing the town to AA2 status, the agency reported that time after time, it wanted to see the charter changed to permit a fund balance to be carried forward and managed by the town’s finance authority.

The previous charter directed all surpluses be carried forward and applied as revenue toward the subsequent year’s budget, instead of relegating some or all of those funds to an account that could be tapped for future needs.

Mr Tait said another observation Moody’s made in its positive outlook referred to “increased voter resistance” to pass a town budget, because in 2007 that spending proposal was defeated three times before it was finally approved. That scenario was turned around completely in the last budget referendum, which also drew historic numbers of taxpayers to the polls.

During the meeting, Mr Tait also handed out a copy of the town’s Capital Improvement Plan (CIP), and a memo illustrating that Newtown is maintaining a self-imposed ten percent debt cap in its borrowing, and indicated to the two Moody’s analysts who met with the local contingent that the town’s leaders were aiming to lower that debt cap to nine percent in the coming year, if possible.

Ms Stocker provided a brief presentation on economic development projects in progress, and on the drawing board, further supporting Newtown’s pitch as a worthy investment risk deserving of a bond rating upgrade.

While expressing continued positive feedback, Mr Tait said the exchange was not without its questions and one point of contention. The finance director said Moody’s representatives pointed out that the illustrated fund balance was not growing in relation to budget growth.

“Our fund balance is healthy, but its percent to budget appears to be decreasing because we are not funding it in relation to budget increases,” Mr Tait remarked. He added that while the amount of Newtown’s fund balance being used to balance the local budget has already decreased substantially — from $3.3 million in the 2007 fiscal cycle to a proposed $2 million for the coming year — the town must “wean itself from balancing the budget from the fund balance.”

Mr Tait noted that neighboring Monroe continued with a similar practice over the past few years and suffered not one, but two bond rating reductions as a result.

He said the Moody’s analysts sent the trio of officials back to Newtown with additional questions to answer, including the amount of capital investment being made by the town’s Water and Sewer Authority, the amount of Parks & Recreation Department surcharges anticipated for the year, and the assessed value of the Newtown Youth Academy, an indoor sports complex that was opened at Fairfield Hills in November.

In related news, and to the end of keeping the taxpayers well informed about the approaching budget process, Mr Tait announced that a highly detailed proposed municipal-side budget document in now available for public review on the town’s website, newtown-ct.gov.

“This is a working copy of the budget, including all departmental requests, so residents can go in and get a look at what’s going on,” Mr Tait said.

After the Board of Selectmen’s deliberations, which are scheduled to occur between January 20 and 27, any changes to the bottom line will be illustrated in an updated posting.

Regarding the Moody’s visit, Mr Tait said no matter what the rating agency decides, its representatives will provide a report detailing the reasoning and methodology behind the decision to take Newtown up a notch, or hold the line. Until then, all parties involved can only sit and wait and hope for the best.