By Peter I. Berman
NORWALK, Conn. — Come election times, the mayor, Board of Estimate and Taxation chairman and Common Council members trot out Norwalk’s AAA bond rating as evidence of “sound financial management.” But they remain silent on property taxes, municipal salaries, stagnant residential properties and grand lists and the abysmal decades-long record of failed redevelopment.
For starters, both Norwalk and it’s surrounding towns have had AAA ratings for decades and decades — in good times and bad. Those ratings really reflect the availability of well-paying jobs in Stamford and New York, not superior financial management. Indeed, if the jobs disappeared, so too the ratings. The really good jobs in Norwalk are from its largest employer — city government — paying the highest municipal salaries of any city in the state.
Anyone with a good course in Finance 101 can easily see that credit agency ratings should be used very carefully. Remember Enron, World Com, Bear Stearns, Lehmann Brothers, Eastman Kodak? Like public firms, municipalities pay the rating agencies for their ratings — hardly an objective arrangement.
But ratings for municipalities are basically designed for major institutional investors who hold municipal debt until maturity. And since few municipalities ever default, the agency analyses are fairly pedestrian. Not so for public companies where the size of the corporate debt offerings are huge (second only to the U.S. Treasury), the risks substantial, ratings used for equity assessment and the corporate debts (bonds) are owned by millions of investors large and small here and abroad.
Courtesy of their many failures of judgment, the agencies came under severe criticism as a result of the Great Financial Recession in 2008. Despite many calls for reform, the agencies remain exempt from litigation. A frequent criticism is that the agencies can hardly be objective when their clients are paying for their ratings. In sum, investors and others who take credit ratings at face value can soon have an “education moment.”
Both Norwalk and it’s surrounding towns are primarily residential communities with comparatively small business areas. So if AAA ratings are really all that matter when judging municipal financial management, then city officials are always to be blessed. They receive high marks during times of low taxes, low municipal salaries, vigorous property appreciation and active business development. And they receive high marks during current times of punitive taxes, high municipal salaries, stagnant residential properties, Grand List and negligible business development. If AAA ratings were all that mattered, then residents shouldn’t’ be concerned that Norwalk municipal workers are the highest paid of any city in Connecticut. Nor stagnant property values for three years. Nor by decades of stagnant redevelopment and large areas of vacant/underutilized land.
And if AAA ratings were all that mattered, Norwalk residents shouldn’t be concerned that the arbitration report took special notice of the much greater decline in Norwalk’s residential properties during the Great Recession compared to our surrounding towns. Nor should residents be concerned that we’ve had three years of stagnant property values amidst a national housing boom where prices have risen double digits in most every major housing market. Nor should residents be concerned that housing values in Norwalk are likely to decline when the next recession hits along with higher interest rates.
And why do many residents move to the surrounding towns if the city enjoys superb financial management ?
Nor should anyone be concerned that the BET — headed by a longtime chairman — not only sets the tax hikes but also is a party to all municipal labor union contracts. Here we have the BET chairman trumpeting the AAA rating while not taking responsibility for negotiating the highest municipal salaries anywhere and property taxes sufficiently high to encourage stagnant property values some three years into the national economic expansion. This is local government at its finest! Not my problem.
Anyone who believes that the credit agencies’ decades-old practice of giving Norwalk a AAA rating signifies that its financial affairs are properly managed must enjoy high property taxes and stagnant property values that cost the city’s residents collectively billions of dollars. And they must believe the BET and the city’s Finance Department were always on top of looking into the BOE’s financial affairs. Never mind the $4 million “missing monies” discovered a few years ago. And they must believe that NEON is well managed, too. And that battalions of $150,000 administrators are worth every penny.
For those who really have faith in the credit agencies, please explain how our lovely state — a national poster child for fiscal mismanagement, with bottom-ranking job growth but a top ranking for unfunded liabilities and debt — enjoys a high credit rating, AA I believe. A recent article in a national business publication frontally addressed the issue of why our state is failing.
When it come to finance, Norwalk’s motto is “I’m all right, Jack.” If the BET chair says we have a AAA rating, then by golly it must be true. But for those concerned about punitive property taxes financing top municipal salaries, stagnant property values and stagnant Grand List, there’s no luster here. The relevant question is the following:
“Who would buy a house in a city with high property taxes, stagnant property values, stagnant Grand List and where city municipal salaries are the highest of any city in Connecticut ?”
It’s a good question. So far the political leaders of both parties are hoping nobody will notice. Maybe they’re right. People get the government they deserve.