By JOHN HOWELL The city has won a reaffirmation of its financial stability and Mayor Joseph J. Solomon gained an important endorsement of his administration in his bid for reelection with the S&P Global Ratings assignment of an "e;AA"e; long-term rating for
The city has won a reaffirmation of its financial stability and Mayor Joseph J. Solomon gained an important endorsement of his administration in his bid for reelection with the S&P Global Ratings assignment of an “AA” long-term rating for general obligation bonds.
S&P Global also re-affirmed its “AA” long-term rating of existing city debt in an eight-page report released July 9. The rating was issued in response to issuance of a $6.72 million, 20-year school revenue bond.
Solomon, who has prided himself for watching out for the taxpayers’ dollars throughout his more than 20 years as an elected official, issued a brief announcement last week.
“I am very pleased that S&P has recognized our ongoing efforts to ensure the fiscal health of our community, despite the many challenges that COVID-19 has presented us. My administration will continue to work diligently to make sure that we are positioned well financially now, and long after the pandemic subsides,” he said in a statement.
It wasn’t long before he was using the news as he rolled out his vision for a “state of the art” sports complex to include a stadium with artificial turf to serve as the home field for Pilgrim and Toll Gate high schools and a revenue generator as the center and its amenities become a venue for regional championships. He said the AA rating would enable the city to issue bonding at reduced rates, not only enabling creation of the new sports center, but also doing so with the least burden to the taxpayer.
“We have been able to maintain, where other cities and towns have had a decline in their bond rating, we’ve maintained the next to the highest bond rating. We like our direction. So we’re able to borrow at almost zero percent,” he said.
In its review S&P took account of the challenges the city has faced in budgeting for schools and more currently the impact of COVID-19.
“We believe management’s work to resolve recent budgetary shortfalls leaves it in a better position to manage the current recessionary pressures. Our outlook is generally for two years, but we see some risks due to the COVID-19 pandemic and U.S. recession over the next six to 12 months. There remains significant uncertainty stemming from the potential effects of the COVID-19 pandemic and the related economic recession, resulting in unknown and unquantifiable potential revenue and expenditure pressures,” reads the report.
The report goes on to cite the basis for the strong rating citing among other things:
- “A very strong economy, with access to a broad and diverse metropolitan statistical area;
- Adequate management, with standard financial policies and practices under our Financial Management Assessment (FMA) methodology;
- Adequate budgetary performance, with slight operating surpluses in the general fund and at the total governmental fund level in fiscal 2019;
- Strong budgetary flexibility, with an available fund balance in fiscal 2019 of 9.3% of operating expenditures;
- Very strong liquidity, with total government available cash at 17.6% of total governmental fund expenditures and 8.3x governmental debt service, and access to external liquidity we consider strong;
- Very strong debt and contingent liability position, with debt service carrying charges at 2.1% of expenditures and net direct debt that is 16.2% of total governmental fund revenue, as well as low overall net debt at less than 3% of market value and rapid amortization, with 81.1% of debt scheduled to be retired in 10 years, but a large pension and OPEB obligation and the lack of a plan to sufficiently address the obligation;
- Strong institutional framework score.
“Our rating incorporates our view regarding the indirect risks posed by the COVID-19 pandemic. Absent the implications of COVID-19, we consider the city’s social risks in line with those of the sector. We believe its environmental and governance risks are in line with our view of the sector standard.”
Not all of the report is glowing, although its observation that the city faces a major hurtle in funding some pension plans and OPEB costs were not given prominence.
“In our opinion, a credit weakness is Warwick’s large pension and OPEB obligation, without a plan in place that we think will sufficiently address it,” it reads.
According to the report following issuance of the $6.72 million bond, the city will have about $121 million of total direct debt, roughly $65 million of which is self-supported and revenue-secured enterprise debt.
It further notes the authorization of $40 million in debt for school capital projects, of which $25 million remains authorized but not issued. It does not address the $56 million school bond to be on the November ballot. If approved by voters, that money would be used to complete upgrades and improvements to elementary and middle schools.