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City’s bond rating stays ‘A’

October 16, 2012
Steve Schulwitz - News Staff Writer , The Alpena News

ALPENA - In a time where governments are having a difficult time making ends meet and some teeter on the edge of becoming bankrupt, the City of Alpena has taken the necessary steps to be sure it is secure financially. As a reward for its fiscal responsibility Standard & Poors recently maintained the city's "A" bond rating, which allows the city to borrow money if needed, or bond out for projects which need to be done.

Treasurer Karen Hebert reported the good news to Alpena Municipal Council during its meeting on Monday. She explained why Standard & Poors was satisfied enough to keep the positive rating. She said for years the city was rated a BBB+, but was bumped to an "A" in 2009. She said the continuing "A" rating shows the city is secure in its finances.

"An A rating means they see us as stable. They liked that we had a 10 percent minimum fund balance policy and the fact we have never been below 10 percent," Hebert said. "They feel our debt burden is low, which means our debt is less than $1,000 per population and we have been paying a lot of our loans off, so that helped too."

Standard & Poors also voiced a few concerns about the city, which may need to be addressed in the future if the city doesn't want its bond rating to slip back to the BBB+. Hebert said having to take a large amount of money from the fund balance in 2012 to balance the budget raised a red flag. Money from the reserves are being used to pay Besser Co., which won a tax tribunal dispute in which the local company prevailed. The city, county and other local institutions must now refund the difference between what was taxed and what the tribunal declared the taxes should be.

"They said we have a healthy fund balance, but their concern is the large deficit and large expenditures which we are going to take out of our reserves. They want us to keep looking at that and trying to reduce that," Hebert said.

At some point the city may be forced to borrow money to complete a needed project and having the high bond rating will benefit the city in the rates it will have to pay. Hebert said another scenario is if the reserve funds deplete to a dangerous level, the city also could sell bonds.

"If we want to go out and do another bond the interest rates will come in better and at some point we may have to sell more bonds," Hebert said. "People would look at us as a strong community and come in and buy bonds. It makes us look stronger and it makes our credit rating better."

Standard & Poors only adjusts the bond rating every few years, so the new rating will stick for at least the next several years. Hebert said she was told that another upgrade in rating is unlikely unless headway is made on the level of the budget deficit each year and the amount of funds being taken from the reserves. She said an effort is made each year to have a balanced budget, but with a drop in state revenue sharing and a decline in the city's tax roll, it has been difficult. She said the city will continue to explore ways to boost revenue and cut expenses.

"They don't see our rating improving any further unless we improve the amount of money we take out of our fund balance to cover our expenses. We have to improve that," Hebert said. "Our tax value may not be as bad next year , so that could help next year and hopefully we get the same amount in revenue sharing and that will help, so if we keep our revenue where it is at or increase it. We will also look at expenses to see where we can cut. That would help lower the amount of money we need to take from the reserves."

Steve Schulwitz can be reached via e-mail at sschulwitz@thealpenanews.com or by phone at 358-5689.

 
 

 

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