Vermont Business Magazine Driven in large part by the City of Burlington's partial settlement with CitiBank over the repayment of Burlington Telecom debt and by the city's overall economic health, a major credit rating service has improved the city's rating from "negative" to "stable." Moody’s Investors Service published a Ratings Report Monday, in which Moody’s improved Burlington’s credit rating outlook to “stable” – revising the City’s rating to “Baa3 stable” from “Baa3 negative.”
In its rating rationale, Moody’s shared the following:
“The stable outlook reflects the recent stabilization of General Fund operations and management’s commitment to addressing the negative unassigned fund balance in the General Fund and nonmajor governmental funds over the near term. The outlook also incorporates the terms of a pending settlement in the BT [Burlington Telecom] lawsuit that, if approved by the Vermont Public Service Board (PSB), will significantly limit the General Fund’s liability.”
“This is great news,” said Mayor Weinberger. “After nearly four years of downgrades and projections of further troubles, Moody’s has taken positive action regarding the City of Burlington. This improvement is confirmation that, as a result of the collaborative work of the Administration, City Council, and the public, we have turned the corner toward rebuilding the City’s finances. This news should give us confidence both in our current path and in our community’s ability to overcome major challenges.”
Other Ratings Report highlights include:
· “Fiscal 2013 audited financials reflect the first General Fund operating surplus in five years of $793,000 (net of bond proceeds) attributable to conservative budgeting of expenditures.”
· “The [deficit funding] bond proceeds have eliminated the city’s need to rely on short term financing through tax anticipation notes and lines of credit (LOC). In fiscal 2014, the city established a $10 million LOC but is expected to end the year without drawing on the balance.”
· Moody’s listing of “[c]losing of BT settlement without alteration of current terms” as a factor that “would make the rating go up” in the future.
Moody's Report Follows:
Moody's revises Burlington, VT's outlook to stable; affirms Baa3 GO on $102.8M of debt
Global Credit Research - 14 Apr 2014
Also affirms Ba1 and Ba2 on $9M of COPs
New York, April 14, 2014 -- Moody's Investors Service has affirmed the Baa3 rating on the City of Burlington, VT's $102.8 million of outstanding general obligation bonds. Concurrently, Moody's has affirmed the Ba1 rating on $1.9 million of outstanding essential (city multi-purpose) Certificates of Participation (COPs), Series 2000, and a Ba2 rating on $7.1 million non-essential (parking) COPs, Series 1999A and 2005. The outlook on the general obligation debt and COPs has been revised to stable from negative. The bonds are secured by the city's unlimited tax pledge.
SUMMARY RATING RATIONALE
The Baa3 general obligation rating reflects the city's strained financial position given the significant advances to other funds from the General Fund prior to fiscal 2012, including a material use of reserves for the expansion of Burlington Telecom (BT). The rating also incorporates the city's strength as the economic center of Vermont (rated Aaa stable) and a manageable debt burden.
The Ba1 and Ba2 ratings on the COPs reflect the city's general credit profile while incorporating the appropriation risk of the COPs and essentiality of the projects.
The stable outlook reflects the recent stabilization of General Fund operations and management's commitment to addressing the negative unassigned fund balance in the General Fund and non major governmental funds over the near term. The outlook also incorporates the terms of a pending settlement in the BT lawsuit that, if approved by the Vermont Public Service Board (PSB), will significantly limit the General Fund's liability.
STRENGTHS
- Stable underlying economy and tax base serving as the economic center of the state
- Manageable debt profile
- Pending settlement with Citibank over telecom enterprise
CHALLENGES
- Addressing negative unassigned fund balance in the General Fund and non major governmental fund
- Finalizing the BT settlement and eventual sale of BT
- Repayment or elimination of advances to other funds from the General Fund
OUTLOOK
The stable outlook reflects the recent stabilization of General Fund operations and management's commitment to addressing the negative unassigned fund balance in the General Fund and non major governmental funds over the near term. The outlook also incorporates the terms of a pending settlement in the BT lawsuit that significantly limits the General Fund's liability.
WHAT WOULD MAKE THE RATING GO UP
- Closing of BT settlement without alteration of current terms
- Trend of General Fund operating surpluses
- Elimination of negative fund balance positions
- Plan to addressing the advances to other funds from the General Fund
WHAT WOULD MAKE THE RATING GO DOWN
- Structurally imbalanced General Fund operations, reducing the city's financial flexibility
- Inability to reduce the negative fund balance positions
- Increased exposure to losses from the city's various enterprise or other non major funds
- Inability to make progress towards repayment of the advances to other funds
The principal methodology used in the rating of the general obligation bonds was US Local Government General Obligation Debt published in January 2014. The principal methodology used in the rating of the certificates of participation was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Source: Moddy's 4.14.2014. City of Burlington 4.15.2014