By Greg Goldfarb
Look at it this way: the rating of a municipal government bond is like a person’s credit rating – the better it is, the more you can do with it.
In the case of the town of Suffolk, its credit is excellent, which means that when the town authorities need to borrow money to improve and develop the community, it is not a problem.
“Having good bond ratings allows the city to borrow money for capital improvements, at the lowest interest rates available in the capital market, which allows the city and its taxpayers to save millions of dollars in interest payments over time,” said Tealen Hansen, Suffolk’s chief financial officer. director. “Some examples of capital improvements include replacing schools, improving and upgrading roads and maintaining town buildings and facilities, all of which contribute to the quality of life for the citizens of Suffolk.”
For the fourth consecutive year, the town of Suffolk’s three bond rating agencies – Fitch Ratings, Moody’s Investors Service and S&P Global Ratings – have affirmed the town’s AAA bond rating, meaning the town has excellent credit and that its future financial outlook is stable. Fitch Ratings is the latest to confirm this with its announcement at the end of July.
The top rating also represents the overall creditworthiness of bonds issued by the Suffolk government, according to William Franklin, Media and Community Relations, City of Suffolk. It also provides assurance that the city has high-quality bonds, with the least risk, and that principal and interest on the bonds will be paid on time and in full.
In finance, a bond is a type of security under which the issuer, or debtor, owes the holder, or creditor, a debt. The debtor is then obligated, according to the terms, to repay the principal – that is, the amount borrowed – of the bond at maturity, plus interest over a fixed term, according to online data.
In its notification to city officials, Fitch said the city’s ability to generate revenue and strong spending flexibility support a higher level of inherent fiscal flexibility, and that Suffolk has healthy reserve balances which support a high level of financial resilience.
“The city maintains a conservative approach to revenue budgeting and expense growth,” Hansen said. “Instead of projecting the best-case scenario for revenue growth in the development of the annual budget, which may or may not materialize, the City is more realistic in its revenue projections. This translates to a greater chance of meeting or exceeding revenue forecasts and improves the chances of year-end surpluses, which are necessary to maintain a healthy reserve balance in the event of unforeseen expenses, economic downturns or emergencies.
“The city also strives to keep expense growth modest within available resources,” Hansen continued, “and does not budget for vacancy savings, which provides flexibility to cover unforeseen expenses that arise during the year.”
Moody’s rating reflects the city’s continued growth and diversification of the tax base, including healthy income levels for residents, according to Franklin. He further noted that Suffolk’s finances are strong and supported by formal fiscal policies and conservative budget assumptions.
“The city continues to add new, expanding businesses and residential growth and development, which facilitates a healthy local economy, provides job and wage growth, and increases household income levels,” Hansen said. “The city maintains a strict adherence to its financial policies that promote fiscal stewardship.”
Standard & Poor’s recognized Suffolk’s consistent and robust operations which bolster already very strong finances.
“The city strives to be consistent in the level and quality of service it provides to its citizens year after year,” Hansen said. “This means providing the full range of municipal services, such as weekly garbage collection, water and sewer, adequate fire and police protection, adequately maintained roads and parks, adequate levels of health and social services, among others, without major disruptions or fluctuations in services. The city’s stable finances allow for this consistency in the delivery of services to our community.
For the City to achieve and maintain its AAA bond status, its annual operating budget must be managed as efficiently as possible, not only allowing for recurring expenses, such as payroll and maintenance, but it must also provide for the ‘unpredictable.
“The city has established financial policies that govern how the amount of fund balance reserves is maintained to support city operations in the event of an economic downturn or emergency event, such as a severe hurricane,” said said Hansen. “Financial policies require the city to maintain a certain percentage of reserves in the fund balance, relative to budgeted expenditures. In the event of an economic event or disruption, the city has the ability to draw on reserve funds to ensure essential services continue uninterrupted and without incurring debt to fund ongoing operations.
The City of Suffolk’s fiscal year 2022 operating budget is $698,200,696, compared to $767,571,838 for fiscal year 2023.