Town’s Top Bond Rating Reaffirmed, Secures Low Interest Rates

aaa credit rating

The town’s bond rating has been reaffirmed as AAA by Standard and Poor’s. It is the highest rating possible.

Each time a bond is issued by the town, its credit rating is reviewed and evaluated by Standard & Poor’s to determine if they will make adjustments, according to Town Manager Michael Lombardo.

The reaffirmed AAA rating came after a recent conference call involving representatives from Standard & Poor’s along with Hamilton Finance Director Marisa Batista, Treasurer/Collector Cheryl Booth, Lombardo and bond counsel from FirstSouthwest.

The conference call was a way for town leaders to highlight the factors that contribute to the town’s high bond rating and reassure the rating agency that the town government continues to deserve AAA status, according to Lombardo.

“I feel the conference call went very well,” Lombardo told the Board of Selectmen in a recent update. “S&P was impressed with the stability of the town budget and management, strong reserves, excess levy capacity of over $2.4 million, and strong market sale prices for single family homes.”

The town sought a new bond rating as its goes out for bonds to fund land acquisition and water system improvements, which have both been previously approved by Town Meeting voters.

The AAA rating means that the town government pays the lowest interest rates possible when borrowing money, Lombardo said. Additionally, the AAA rating also makes the town’s bonds highly desirable in the investment community. For example, for the most recent issuance, the town received 25 bids. And in addition to getting low interest rates, the town sometimes receives direct cash in the form of a bond premium, Lombardo said. In 2015, the town issued $7 million in bonds and received over $200,000 as a bond premium.

In Standard & Poor’s rating, it said that it believes Hamilton can maintain better credit characteristics than the nation in a stress scenario. Hamilton has a very high general fund balance as a percent of expenditures and very strong liquidity, according to Standard & Poor’s.

The rating also took into consideration what Standard & Poor’s said is Hamilton’s very strong economy, strong management, strong budgetary performance, very strong budgetary flexibility with an available fund balance in fiscal year 2016 of 18% of operating expenditures, very strong liquidity and a very strong debt and contingent liability position.

Water Rate Increase First in Seven Years, Funds Voter-Approved System Improvements

The bills that arrived in the mailboxes of Hamilton water customers in recent days reflect new water rates that were approved in February. It is the first hike in the water bills since 2008 and the rates are still below many surrounding communities. Hamilton town officials do not anticipate having to increase the rates again for several years.

Water Faucet

The new rates are a combination of a flat rate service charge and a usage charge. The service charge – which has gone from $20 to $60 – is an equal charge to all water customers and covers the debt payments for the cost of upgrading the water plant and distribution system. The usage fee covers the cost to operate the system, according to Finance Director Deborah Nippes-Mena. Currently, the town has bonding for $5 million – approved by voters in 2012 – to pay for water system improvements. Much of that work has been completed.

The annual debt payment for the water system in fiscal year 2016 is $609,713, which is up from $159,000. Older debt for water plant and filter system upgrades will be completed by the time bond payments for Phase II, approved at the Annual Town Meeting in April this year, will be bonded in 2019-20.

It is possible that new housing developments could become a large enough customer base to absorb the additional cost for Phase II.

Unlike the service charge, the usage charge depends on how much water is used and the rate goes up as more water is used. The water system’s operating budget, which is funded by the usage charge, has been growing 3 percent annually, largely because of increased pension and health insurance costs, according to Nippes-Mena.

The Hamilton Board of Selectmen approved the new water rates during a vote on Feb. 5, with an effective date of Jan. 23, which was a few days after a public hearing about the new rates.

The new, higher water rates were discussed at several public meetings, where it was explained that the additional revenue was needed to support the growing cost to operate the water system and the new debt payments for water distribution system improvements. In addition to discussion at several Board of Selectmen meetings during the past two years, the new rates have been discussed at Town Meetings in 2012 and 2015 when voters were asked to approve borrowing money for the water distribution upgrade.