NAUGATUCK — The bond rating agency Standard & Poor’s has upgraded the rating on the borough’s long-term general obligation bonds, meaning the borough could pay less in interest when it borrows money.
The New York City-based agency said the upgrade reflects the company’s opinion that Naugatuck has a stable general fund reserve and good management policies and practices in place.
Naugatuck’s bond rating, which is similar to an individual’s credit score, was recently upgraded from ‘A+’ to ‘AA-‘ with a stable outlook.
The stable outlook reflects the company’s expectation that the borough will continue to maintain healthy reserves despite appropriating about $950,000 from the fund balance this year to minimize a tax increase, according to a company news release.
Naugatuck still has about $7.5 million in its fund balance, money local officials could use on expensive capital projects such as road repairs or major upgrades to municipal or school buildings, rather than to offset operating expenses. The borough wants to keep money in that fund balance to maintain a solid bond rating.
Naugatuck has a total of $84.45 million of outstanding and long-term general obligation debt. Because of the improved bond rating, investors could feel more confident buying those bonds.
The stable outlook also reflects the agency’s expectation that the borough’s property tax base will continue to grow, and that Naugatuck will maintain sound property tax collections, which account for approximately 58 percent of the borough’s budgeted operating revenues, said Hilary Sutton, a Standard & Poor’s credit analyst, in the news release.
Mayor Robert A. Mezzo said news of the upgrade is another indication that Naugatuck has made substantial progress in its efforts to get its financial house in order and has made sound financial decisions over the past 15 to 20 years.
“There are a lot of people responsible, not only our controller, Wayne McAllister, but also the leaders of the Finance Board who realized we had a serious problem in the 1990s and set forth a long-term financial plan to fix it,” Mezzo said.
The borough has built up its fund balance and resisted temptations to deplete it to offset operating expenses, he said. The fund balance is recommended to the Finance Board and Board of Mayor and Burgesses by McAllister, who makes those recommendations based on conversations with the borough’s bond counsel.
Mezzo said some people look at the fund balance and think it’s money the government has that it’s not spending on other needs.
“But the reality of it is (the fund balance) is required of us,” he said. “I think it’s appropriately used to make capital improvements and other one-time expenses, but you cannot use it for operating expenses because it’s one-time revenue.”
