By Doug Hempstead and Bruce Kimmel
Common Council members
Norwalk recently received yet another AAA bond rating from the three agencies that evaluate the overall economic condition of American cities. The importance of this rating, in concrete terms, is not often fully appreciated by the general public – which knows it’s a good thing for the city, but might not know just how good a thing it is for the city.
Having the highest bond rating enables Norwalk to borrow money for capital projects at the lowest interest rate, currently around 3.25 percent. Last year, during a discussion of possible solutions to the problems associated with the Board of Education’s $4 million shortfall, Norwalk Finance Director Tom Hamilton was asked what a reduction from our AAA to a B rating would mean. His answer: It would cost taxpayers roughly $22 million over the next twenty years.
That would have an extremely negative impact on the city’s operating budget. It would increase the yearly debt service for all capital projects, which currently is at a manageable $26 million per year in our operating budget, and squeeze our ability to finance other operating expenses.
Having a AAA rating enables Norwalk to maintain its infrastructure, roads and various buildings at the lowest possible costs.
For instance, Norwalk currently has a Pavement Condition Index (PCI) of 75 out of 100. That is pretty good and means that most of the 251 miles of our roads are in relatively decent condition. We have been able to maintain a PCI of around 75 by spending roughly $5 million each year in capital funds for road repair. To reach a PCI of 80 would require an additional million a year. In contrast, not having a AAA rating would force the city to scale back its capital expenses and would severely hinder our ability to keep our roads in good condition.
We are in the early stages of renovating Rowayton and Naramake schools. Although a portion of the money for these projects is reimbursed by the state (about 33 percent), the bulk of the money is from the sale of bonds at certain rates of interest. The lower the rate, the more schools we can renovate, the more we can do for each school, and we can do it all in a shorter period of time. Having a AAA rating makes it a whole lot easier to keep our school facilities in good condition.
Another example of how the AAA rating frees up money while limiting the burden on taxpayers is our flood mitigation program. For the last fiscal year, we approved $2.1 million in our capital budget for water maintenance; this year, it was $1.5 million. Together, these funds, along with funds in our operating budget, will enable the city to address many of the local flooding problems that have afflicted residents in different portions of the city.
A key measure that determines the specific bond rating a city receives is the amount of money in the so-called rainy day fund. If that fund is at a level equivalent to 7 percent or more of total expenses, the city is deemed to be in good enough fiscal shape to weather whatever economic calamities emerge. This year, we were able to transfer $1.7 million from the rainy day fund to help us fully finance the Board of Education’s operating budget request. Yet we still have a rainy day fund of almost $26 million, or 7.9 percent of total expenses. (It is important to mention that this year’s capital budget contains an additional $2.1 million for new textbooks.)
On Aug. 1, the city will issue $15.6 million in municipal bonds to raise the cash necessary to proceed on a variety of capital projects – projects that will improve the quality of life in the city. Having the highest bond rating means we will be paying the lowest interest rate available for the next twenty years on these bonds. This is a big plus for taxpayers.
Receiving and then maintaining a AAA bond rating requires a commitment to long term financial planning, as well as the use of proper fiduciary and accounting practices. We should commend the mayor, the Board of Estimate and Taxation, the BOE, the Common Council, and the Finance Department for working hard, and for working together, to achieve this difficult-to-get rating.
Norwalk has experienced the economic turmoil that has afflicted cities throughout the country for the last five years. It’s been tough and we’ve been careful. On several occasions we resisted calls to raid our rainy day fund to deal with short term budget problems. According to the rating agencies, after five years of recession our city has emerged in excellent shape.
Doug Hempstead, Republican Common Council at-large member
Bruce Kimmel, Democratic District D Common Council member