T&G: Worcester earns A's in fiscal ratings

By Nick Kotsopoulos TELEGRAM & GAZETTE STAFF

WORCESTER —  The city's fiscal health remains strong as two bond rating agencies have affirmed their previous ratings for it, citing “significant improvement” in its reserve and liquidity positions, as well as prudent management of unused property tax-levy capacity and steady progress toward funding long-term liabilities.

Moody's Investors Service has assigned an “A1” rating to the city's upcoming bond sale — $6.8 million general obligation District Improvement Financing Bonds.

It also affirmed the “A1” rating and “positive outlook” for the city's $573 million worth of outstanding general obligation limited tax debt.

Concurrently, Standard & Poor's assigned its “A-” long-term rating to the city's bond issuance and affirmed its “A-” rating and positive outlook for previously issued debt.

The general obligation District Improvement Financing Bonds are scheduled to be put out for sale on May 22.

At the same time, the city plans to sell $21.9 million in short-term Bond Anticipation Notes.

City Manager Michael V. O'Brien said the ratings are an indicator of the city's long-term “stability, vibrancy and vitality.”

“I am pleased by this news and appreciative of the collective work that has been done by all to help stabilize our municipal finances,” Mr. O'Brien said.

In its analysis, Moody's said its long-term “A1” rating reflects the city's satisfactory overall credit profile, which includes improved financial reserves, moderate tax-levy capacity under Proposition 2-1/2 and medium-term expansion in the city's economic base.

Moody's added that its positive outlook for Worcester recognizes continued improvement in financial operations, resulting in increased reserves, expected medium-term tax-based growth and a prudently-managed debt position.

“Worcester's positive outlook reflects the city's improved financial position and reduced enterprise risk due to a conservative approach to budgeting and expenditure management,” the Moody's report said. “The city's management and elected officials have adhered to its adopted Five-Point Plan, a set of comprehensive financial policies adopted in 2006 to improve financial reporting and forecasting for the city's operating and capital budgets, generate growth in reserves and provide limits for annual general fund borrowing.

“The positive outlook anticipates improvement in Worcester's financial position in the near term, including continued augmentation of general fund and stabilization fund reserves, steady progress toward funding (long-term liabilities) and a prudent approach to capital planning and debt management,” the report added.

Standard & Poor's, meanwhile, said good financial management practices have enabled the city to maintain financial stability through the recession, while many other communities' bond ratings have declined.

“Worcester's financial position has improved substantially over the past three fiscal years,” the Standard & Poor's report said. “The positive outlook reflects our assessment of the city's ongoing progress toward improving financial budget management practices and reserves, while at the same time implementing cost control and reform measures associated with its long-term liabilities.

“In our view, the city has proactively adjusted to lower state revenues and local receipts through the recession,” it added. “Moreover, economic development has been steady.”

Both ratings agencies did express concerns, however, about the city's ability to address a large unfunded liability for post-employment health benefits. According to most recent actuarial projects, that unfunded liability is at about $765 million, which is actually down significantly from an initial 2008 valuation of $1.2 billion.