Boards get lowdown on Guilford finances
Monday, October 6, 2008 3:46 PM EDT
By Rachael Scarborough King, Register Staff
GUILFORD — Faced with proposals to build a new middle school and high school, possibly at a cost of more than $100 million, officials met Thursday to discuss the town’s financial situation and bond rating.
Members of the boards of Selectmen, Finance and Education sat down with two financial consultants to talk about the fiscal outlook. The consultants said the town’s recent reliance on its fund balance reserves could lower its bond rating, thus making it more expensive to borrow money.
Consultant Michael McKinnon said that one bond rating agency, Moody’s Investors Service, recently downgraded the town’s rating, and Fitch Ratings could follow suit.
The agencies evaluate towns on factors including finances, management, wealth and current debt to form an assessment of the ability to repay debt.
William Lindsay, another consultant, said that the downgrade in the credit rating is due to a depletion of the fund balance in the past few years. The town has been using the reserve as part of its regular budget and cut the fund from about $7.4 million to $3.4 million since 2002.
At the same time, the current nationwide financial crisis and an expected credit crunch could make it more difficult for towns to sell bonds for municipal projects, the consultants said.
“Your repeated use of fund balance makes you more of a credit risk,” Lindsay said.
McKinnon added: “You don’t have any financial flexibility when your reserves get down to these low levels.”
First Selectman Carl Balestracci said that the town is working on a policy that would set goals for reducing the use of the fund balance in the budget and replenishing it over time.
“We are already working on a draft for the Board of Selectmen to consider,” he said. “That’s going to come before the Board of Selectmen very soon.”
But Board of Education Chairman William Bloss noted the overall volatility in the credit market and said that the interest savings from having an upgraded credit rating would have to be big to offset the cost of adding money into the fund balance.
“Sitting here on Main Street, it’s really hard for me to take seriously the credit agencies. … We’ve never defaulted on anything,” Bloss said. “It’s a little hard to accept this level of concern based on what they’ve let go in the private world for the last five years.”
Balestracci noted that an upgrade of the town’s credit rating several years ago led to a savings of $800,000 over the life of the last town bond, which was less than $20 million.
“We have to consider the voters,” he said. “The last thing any of us want to do is go to a referendum and have it fail because then we’ll be set back another however many years.”
Rachael Scarborough King can be reached at firstname.lastname@example.org or 789-5742.