Nation’s Three Major Credit Rating Agencies Affirm City’s Strong Fiscal Management
The City of Cambridge has retained its noteworthy distinction of being one of approximately 32 municipalities in the U.S. to earn AAA ratings from each of the nation’s three major credit rating agencies. Each year since 1999, the city has received these ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
“I am proud of the City’s strong and dedicated team that carries out the policy initiatives of the City Council and delivers the high-quality city services and programs our community expects,” said Cambridge City Manager Louis A. DePasquale. “One reason why Cambridge can undertake significant capital projects is because of the fiscal management of the city. Our AAA bond rating allows the city to finance major projects at lower interest rates, saving our taxpayers millions of dollars. I want to thank the City Council for its leadership in adopting and maintaining sound fiscal policies.”
These ratings are in conjunction with the city’s sale of $53.7 million in General Obligation bonds. The competitive sale will take place on March 5, 2020. Capital projects funded in this bond issuance include the King Open/Cambridge Street Upper School and Community Complex, Tobin Montessori & Vassal Lane Upper Schools design, sewer reconstruction, street and sidewalk reconstruction, and other municipal building renovations.
As the city undertakes a significant increase in debt issuance over the next few years to fund its school rebuilding program, the AAA rating will play a significant role in enabling the city to secure the most favorable interest rates. This is especially important as the city embarks on funding its third school project (Tobin Montessori and Vassal Lane Upper Schools) with an estimated cost of $250 million. Overall, including the Tobin School project, the city is projected to spend a total of $505 million for the three school projects. In addition, the bonding schedule includes significant obligations for renovations to Fire Headquarters, fire stations, and other city buildings, sewer reconstruction, and street and sidewalk projects.
The following are excerpts from the Rating Agencies reports
S & P Global
We consider Cambridge’s economy very strong. Home to both Harvard and the Massachusetts Institute of Technology (MIT), the city is at the epicenter of biotech, pharmaceutical, and other knowledge-based sectors, which continue to generate growth in the tax base. The city faces challenges in addressing housing, transportation, and other infrastructure needs. However, it has a history of significant forward-looking financial planning and a track record of consistently outperforming the budget. We expect Cambridge to remain a desirable location to live and work, sustaining economic growth that will assist management in meeting future challenges. The long-term rating further reflects our view of the following factors:
• Very strong management, with strong financial policies and practices under our Financial Management Assessment (FMA) methodology;
• Strong budgetary performance, with operating surpluses in the general fund and at the total governmental fund level in fiscal 2019;
• Very strong budgetary flexibility, with an available fund balance in fiscal 2019 of 53% of operating expenditures, and the flexibility to raise additional revenues despite statewide tax caps.
Moody’s Investors Service
The Aaa rating reflects the city’s strong financial position including significant liquidity and reserves. The rating also incorporates the sizeable, growing and diverse tax base that is anchored by world renowned higher education institutions and a substantial research and development sector, a below average debt burden and manageable pension and OPEB liabilities.
The stable outlook reflects the city’s strong fiscal management that is committed to maintaining a healthy financial position given conservative multi-year budget forecasting and adherence to formally adopted fiscal policies. The outlook also incorporates the stabilizing presence of Harvard University (Aaa stable) and Massachusetts Institute of Technology (Aaa stable) as well as the long historical trend of positive valuation growth in the tax base.
The city’s ‘AAA’ GO bond rating and IDR (Issuer Default Rating) reflect Fitch’s expectation for Cambridge to maintain a high level of financial flexibility through economic cycles, consistent with a history of strong operating performance and budget controls. The ratings further reflect the city’s wealthy and growing property tax base, moderate expenditure growth and its demonstrated ability to reduce expenditures during economic downturns.
Fitch expects long-term liabilities to remain low based on the city’s capital needs, very rapid pace of principal amortization, continued growth in economic resources, and a practice of fully funding actuarially determined pension contributions. Cambridge continues to strengthen its position as a national leader in the life sciences and high tech sectors. Expansion in these sectors has contributed to a notable tax base, employment and resident income growth over the past several years.
Fitch expects revenue growth to continue to be strong based on the city’s solid underlying economic fundamentals and expectations for future tax base growth from new commercial and residential projects.
Fitch expects the city to maintain a high level of financial resilience throughout an economic cycle given its historically strong revenue performance, conservative budgeting practices and superior degree of inherent budget flexibility. The city’s steady growth in revenues has supported surplus operations over the past several fiscal years and has build up its reserve to high levels.