Quantcast

Opinion: Norwalk AAA rating is worth the sacrifice, work

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

Comments

15 responses to “Opinion: Norwalk AAA rating is worth the sacrifice, work”

  1. Norwalk Lifer

    I would like to see the details behind the risk of 22 mlllion. What are the figures that back up this claim?

    While having a triple A rating is surely a positive thing in this discussion, the advent and possible future use of credit for city services, should concern every citizen. Not “raiding” a rainy day fund does not impress me, what does Norwalk consider “A rainy day”? shortfalls during a hurricane? the frivolous use of federal money during such times? if Norwalk is wholy operating subsidiary of the State of Connecticut, surely we recognize that holding onto funds bolsters this rating, but in fact, could cause it to tumble at any given point in time.

    I am not interested in paying for the shortfalls created by forgiving tax rates to retail businesses at the expense of the private homeowner, nor am I interested in paying taxes on an overally inflated value base for a home when industrial complexes are being built in neighborhoods. I am not interested in businesses moving into this town that would have the potential of impacting shorelines negatively. And certainly, I am not interested in paying them to move here, so the city can crow about a few extra jobs brought in to employ those who live here. Norwalk has shrunk while it’s citizenship has grown, there are no grand ideas on how to entice businesses with vision to this town. You can point to a sleepy little glen in California during the late 1970’s; San Jose, it is a booming bustling well run town which grew from the movement of Route 128 in Boston to Silicon Valley. It’s disappointing to see how little vision the town fathers in Norwalk have. And yes, there are individuals who are more inclined to think big in this regard. If this were the case, then the Triple A rating that Norwalk enjoys would not be the first Boy Scout badge pinned on the chest of this city.

  2. jlightfield

    Oh come on. A rating downgrade would not be from AAA to B, it would be more likely from AAA to AA and the savings would be negligible since only newly issues bonds would be sold at the hypothetical newly downgraded rating. Stamford, Fairfield and Danbury bonds were currently bought at 4%, they manage to actually invest capital funds to improve the infrastructure of their towns.

    A stagnant grand list means higher taxes for residents, no matter what your bond rate is.

  3. Don’t Panic

    @jlightfield

    You took the words right out of my mouth.

  4. Ken P Jr

    While having good credit IS important, I dont think we should NEED ANY credit except for emergencies. Living within our means is a better way to go. Besides, I’d imagine we toss away more than 22 million a year on pet projects & social initiatives invested in those who contribute nothing monetarilly. Also if the city is concerened with the quality of living they should STOP useing us as a tourist attraction and venue for every cause & movement out there. Almost every weekend in the summer East norwalk is treated like a public course for joggers or bicyclists. Took me 15 minutes sitting watching bicycles go by while police I pay for stopped traffic for them at East Ave & Winfield St. The cop even looked frustrated, but he was making money while I, a taxpayer, was stuck there trying to get to work.
    Getting back to basics is more important than insureing you can pay for things you could afford easilly if we acted responsibly. Maybe we should start charging the marathoners & cyclists if they want to tie up our city.

  5. Norwalk Spectator

    Jackie,

    A downgrade in a bond rating simply means there is a drop from one level to another. It is not necessarily a drop of one grade level to the next. Bridgeport found that out rather spectacularly a number of years ago. Bridgeport was also able to redeem some bonds recently and the reduction to their debt service was phenomenal. The bond agencies watch municipal finances like hawks.

  6. dawn

    I don’t know abouit the city rating, but i just paid my water bill. It makes me mad every time i pay that bill. I remember that letter that the water company sent out when they raised all of our rates.
    The letter basically told me that residents were being penalized for being conservative in their water use.
    the water company need to protect its rating instead of taking care of the residents who are held captive and have no choice but to pay their ransom for the privelage of using water that is essentially owned by the public to begin with.
    i was kind of upset when there was not a huge uproar when that all happened.

  7. jlightfield

    @Norwalk Spectator
    This singular focus on Norwalk’s credit rating is shortsighted. The reality is Norwalk bonded 26 million in 2012, and 21 million in 2013. A 5 million drop in capital investment simply because the city, can’t figure out how to qualify for infrastructure improvement grants to relieve the burden placed on revenues generated by property taxes.
    The interest rates on municipal bonds at the AAA, or AA ratings are in line with inflation, so basically it is interest free borrowing, and this common council once again authorized textbooks as a capital expense. This op-ed piece is fluff, paints a specious savings somehow “earned” because of a do-nothing approach to actually investing on improving our city. I really can’t get behind the great traffic signal upgrade that places traffic poles and utility boxes in the middle of sidewalks.

  8. Tim T

    “That is pretty good and means that most of the 251 miles of our roads are in relatively decent condition”
    That’s a lie if I ever heard one. Please tell us oh great one Bruce which roads are in good shape as I see none.

    “The importance of this rating, in concrete terms, is not often fully appreciated by the general public”
    Oh yeah, I forgot, Doug Hempstead and Bruce Kimmel are just so much smarter than those pesky taxpayers

  9. Tim T

    Ken
    You forget to add that the cop was making 65 bucks an hour that you and I pay for.

  10. Bryan Meek

    @NorwalkLifer….. San Jose, really? Besides the glut of empty office buildings, have you even been there ever? You must have also missed their credit downgrade from last year that was the result of ridiculous pension obligations. http://www.mercurynews.com/bay-area-news/ci_20390596/3rd-agency-lowers-san-joses-credit-rating

  11. Bryan Meek

    @NorwalkLifer. Speaking with real experience of having worked consulted for Cisco on some financial systems projects and commuted there countless times, I think I might have a more informed opinion of San Jose you might be interested in besides the facts I gave you earlier.

    The light rail system in San Jose will never return a dime to the city and never had the promised ridership materialize. Bogus studies and projections and an overall lack of vision and connection with reality will eventually bankrupt San Jose. They are actually more like Detroit than a city worth emulating. The city of San Jose government feeds off of Silicon Valley. Not the other way around. It is private industry that pays the taxes that builds the airports, roads, and transit systems. The city of San Jose decided to spend it on lavish pensions and stupid trolleys that no one rides and now they are in trouble. They can and will raise taxes until businesses and people leave until no one in their right mind stays on and you get a blown out crime zone like Stockton or Detroit. Lather, rinse, repeat.

  12. Bryan Meek

    City government grows at a 4% clip. Borrowing at 3% is a no brainer for capital improvements. Real inflation is much higher right now. Finance 101 stuff here. In theory, we should borrow as much as we possibly can right now with rates so low.

    What would be nice is to see the proceeds from the debt instruments used towards new projects instead of just maintenance.

    For example, raise proceeds of a bond issuance and other grant applications to buy Manresa Island from CL&P, abate and remedy the land, build a maritime college in partnership with the state to produce a workforce competent in naval architecture, marine engineering, marine biology, etc… That’s a real project. Maintaining the status quo is good , but hardly visionary.

    Still great work by the council and others, but really mostly the credit should go to our treasury function in the Finance dept.

  13. loveforthecity

    @Meek…
    What have these two councilman done? Kimmel helps with bee hives and Hempstead, umm yeah, can’t really think of what he does. Two do-nothing councilman, you have to love how Kimmel is in a love fest with the GOP, Hempstead and McCarthy. They deserve each other! Cut from same cloth. It is time these two enjoy their retirement.

    (Editor’s note: This comment has been edited to conform with our comment policy)

  14. @BryanMeek,
    What a great vision for a new venture in the city!
    I am sure other taxpayers would love to hear what other “dream” visions for the city anyone has to offer and hopefully a (new? reborn?) mayor with the guts to PROPERLY see it through…

    Personally, I just cannot take any more:
    Cronyism,
    Back room deals,
    Shoddy workmanship,
    Government handouts,
    The old boys club,
    Over development/under & poor planning,
    Unions,
    Double talk,
    Red tape intentionally created to abuse/confuse and bury the taxpayers.
    In addition, the rest of the dog-n-pony show put on for the public by politicians, republicans and democrats alike (Bob Duff and Himes are high on the list as well as the current administration all around).
    I guess politics is all about “one hand washing the other” or the word used most often used in lieu of such obvious candor, “compromise”.
    Sigh…

  15. Norwalk Lifer

    Dear Mr. Meek:

    You completely missed my point, prior to the move to Silicon Valley, San Jose was a sleepy little glen, if you wish to explore the cause of the depression in the industry, I suggest you review the wanton handling of HB-1 visa quotas, Up to 2000, only Congress could increase the number of visas, but once the Cox and his minions weaseled their way in, the quotas went up, the salaries went down and the influx of foreign nationals with “advanced degrees” caused a disruption in the pay scales, I invite to review the Hayes report from 1978 to the present. The cost of living increased dramatically and of course, the wages were not commensurate with the area. So it’s no wonder, is it?

    Now, the Asian corridor dominates the sector that was a revenue infusion for the State. I find it laughable that you would defend the status quo here in Norwalk and not take the time to review the causal effect of what happened in San Jose. After all, programmers can work from most anywhere, can’t they? Maybe you’d like to explore the move of fabs to Ireland in the 1980s? and now? they are moving back.

    Interesting, isnt it?

    Regards
    Norwalk Lifer

Leave a Reply


Recent Comments