City holds its ground in latest bond ratings

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September 18, 2012

City holds its ground in latest bond ratings

By Steven Fletcher Staff Writer The Gloucester Daily Times Tue Sep 18, 2012, 12:00 AM EDT

Gloucester’s credit rating remains level at the Aa3 Moody’s investors service set it at last summer, despite a 24 percent increase in long-term debt over the last year.

Moody’s reaffirmed that rating in a report issued earlier this month, with Gloucester’s long-term debt at $68.2 million, up from $53.9 million last summer.

“Gloucester’s long term Aa3 rating reflects the city’s moderately-sized coastal tax base with average socioeconomic indices, an improving financial position and an above average debt burden,” the Moody’s report indicated.

In the investors service and rating agency’s latest rating, it assigned a MIG 1 rating to around $17.1 million in bond anticipation notes for short-term financing. Those funds go toward water system upgrades, school roof repairs, and other capital needs, according to an opinion from Moody’s. An MIG 1 rating is the agency’s highest rating for short-term debt.

In June 2011, Moody’s removed its “negative” outlook forecast from the city’s Aa3 credit rating, meaning the rating means the investors’ service considers the city’s municipal bonds are high quality, and low risk.

The rating is one step short of the top-of-the scale Aaa rating. Neither Mayor Carolyn Kirk nor Gloucester Chief Financial Officer Jeff Towne could be reached Monday for comment, but in general, the city’s bond rating is seen as important because it affects the interest rate the city pays on its debt service; the rating also functions as a rough barometer of a city’s fiscal health.

Moody’s removed the negative outlook in 2011 citing “significant” redevelopment potential, an improving fiscal position and a manageable debt burden.

In the new, September 2012 Moody’s ratings, the agency listed Gloucester’s strengths as “structurally balanced operations and growing reserves, adequate financial policies and planning, and a moderately sized tax base with a regional fishing port.”

The city’s weaknesses, the agency’s release states, are “high fixed costs related to pension, employee benefits and debt service, and a limited margin under Proposition 2 1/2.”

It would take “significant tax base growth and diversification” to raise the city’s credit rating, according to Moody’s report, while a “failure to address” the long-term pension and employee benefit obligations, deterioration of the tax base, or cuts to the municipal surplus and general fund could drop the rating.

Those benefit obligations, according to a report in the Boston Business Journal, are substantial. That report, which cites Gloucester’s latest annual report, indicates that the city has more than $200 million in unfunded pension and health care liabilities on its books.

Steven Fletcher can be reached at 978-283-7000, x3455, or at sfletcher@gloucestertimes.com. Follow him on Twitter @StevenGDT