After getting a glowing financial review in the midst of most having a financial meltdown, the City of Everett is preparing to go out and sell Capital Improvement Project (CIP) short-term bonds at a very favorable rate this week.
“The City’s financial state is sturdy in lieu of the COVID19 pandemic,” said Mayor Carlo DeMaria. “I am proud of the hard work by the Administration, specifically CFO Eric Demas and the entire financial team for keeping the City’s financial state as strong as they have.”
Mayor Carlo DeMaria and CFO Eric Demas announced the positive news this week, noting that Standard & Poor’s Credit Agency reviewed the City’s COVID-19 response and its financial situation last week. That thorough process allowed them to re-affirm an AA+ credit rating – the second highest rating for a municipality. For short-term borrowing, the City was able to receive an SP-1+ rating – which has spurred their decision to take their bond sale to the short-term markets this week.
Because long-term municipal bonds are not selling on the market, and the rare ones that do get interest rates over 4 percent, Demas said they plan to hit the short-term markets with Bond Anticipation Notes (called BANs). Everett will sell those nine-month BANs on the market this week, with the expectation of using their re-affirmed AA+ rating later this year for a large long-term bond sale.
“We’re very pleased to announce on Friday they re-affirmed the City’s AA+, which is the second highest rating,” he said. “We’ve actually decided to switch from long-term and just go short-term BANs. Those are coming in and starting to produce good results. We’re actually scheduled for a sale this week…We’re anticipating very, very good rates as well as some significant interest and competition in issuing our bonds. We’ll be looking at doing that later this week – nine months on a short-term – and see what comes in and buys some time. We’ll wait for the markets to settle down and look for the long-term bond market to come back. The crediting agencies have been impressed with how Everett is weathering this storm.”
Cities like Everett typically pay for park renovations, public safety facilities, infrastructure upgrades and any number of projects through long-term borrowing on the municipal bond market. Most of the projects are specified in the City’s CIP – which is approved yearly by the City Council. However, recently, the municipal bond market has been looked at very unfavorably by the investment community as cities and towns get swamped in debt and expenses related to the COVID-19 pandemic. Many are also worried that revenues from meals taxes, hotel excise taxes and real estate taxes could plummet when jobless residents and closed businesses cannot pay those bills. If that were to happen, financiers worry that cities could go bankrupt and not pay their long-term bonds. So, few are taking the chance to bid on any bonding sales and many sales this month have brought no customers. However, the short-term market is still showing promise, and Demas said it was supported by the mayor to take that path so that important projects in the works don’t get stalled out.
Some of Standard and Poor’s highlights in the credit ratings affirmed for Everett included:
•Strong budgetary performance, with operating results that we expect could improve in the near-term relative to fiscal 2019, which closed with operating deficits 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 15 percent of operating expenditures;
•Very strong liquidity, with total government available cash at 23.9 percent of total; governmental fund expenditures and 4.lx governmental debt service, and access to external liquidity that we consider strong;
•Very strong debt and contingent liability profile, with debt service carrying charges at 5.8 percent of expenditures and net direct debt that is 46.3 percent of total governmental fund revenue, as well as low overall net debt at less than 3 percent of market value and rapid amortization, with 66.5 percent of debt scheduled to be retired in 10 years, but a large pension and other post-employment benefits (OPEB) obligation.