Thursday, August 1, 2013

Moody's downgrades Town of Templeton MA's GO rating to A2; outlook is negative


Moody's downgrades Town of Templeton MA's GO rating to A2; outlook is negative

After the Joint meeting of both the Templeton and Phillipston BOS called by the Narragansett Regional School Committee, Mr. Morrison and I were approached by TGN reporter Kerry O’Brien regarding the downgrading of Templeton’s bond rating. 

This was news to me so I decided to look into it. I found this article online regarding the downgrading of Templeton’s bond rating:



“Rating Action: Moody's downgrades Town of Templeton MA's GO rating to A2; outlook is negative
Global Credit Research - 30 Jul 2013

Downgrade affects $11.2 million of outstanding debt
New York, July 30, 2013 -- Moody's Investors Service has downgraded the Town of Templeton MA's general obligation rating to A2 from A1 and assigned a negative outlook. Concurrently, we have removed the rating from review, as our downgrade of the rating resolves the earlier action. Moody's placement of the rating under review, with direction uncertain on June 26, 2013, was prompted by a lack of sufficient 2012 financial information, which we have since received.

The town's unlimited and limited tax GO bonds are secured by its GO unlimited and limited tax pledge respectively, subject to the Commonwealth of Massachusetts' (Aa1 Stable Outlook) Proposition 2 ½ tax levy limitation. As of June 30, 2012, the town has approximately $6.9 million of unlimited tax GO bonds and $4.3 million of limited tax GO bonds outstanding.

SUMMARY RATINGS RATIONALE

The downgrade to A2 reflects the town's deteriorating financial position, which is driven by rising expenditures and annual transfers to the sewer fund to pay for ongoing projects. This pressure is demonstrated by the town's falling general fund balance levels, which declined by 40% from 2008 to 2012. In addition, the town's new management team may not be able to reverse these trends expeditiously given their limited knowledge of the town's finances. The A2 rating also considers the town's modest-sized tax base, manageable debt burden, and below-average socioeconomic indices.

The negative outlook incorporates Moody's expectation that the town's reserve position will continue to diminish given ongoing operating pressure and management's lack of clear plans to address this pressure.

STRENGTHS

Manageable debt burden

CHALLENGES

Narrowing reserve position

Management's limited understanding of the town's fiscal pressures

General fund substantially supporting the costs of ongoing sewer projects

Modest tax base and wealth levels

OUTLOOK

The negative outlook reflects Moody's expectation that the town's financial position will continue to deteriorate, with additional operating deficits in the near term. It also incorporates the town's lack of formalized plans to reduce the town's dependence on reserves. Further weakening of town reserves could lead to additional rating pressure.

WHAT COULD MAKE THE RATING GO UP (REMOVAL OF NEGATIVE OUTLOOK)

Improvement in management practices, evidenced by the implementation of strategies to reduce reliance on reserves and elimination of qualified audit opinions

Growth and stabilization of general fund reserves

WHAT COULD MAKE THE RATING GO DOWN

Failure to address shrinking reserves

Additional significant tax base declines

The principal methodology used in this rating was General Obligation Bonds Issued by US Local Governments published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joshua Levine
Associate Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Douglas Kilcommons
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653”

So what does this mean? I hope the Templeton BOS will have a discussion about this issue at our next meeting. I think it is important to note:

WHAT COULD MAKE THE RATING GO UP (REMOVAL OF NEGATIVE OUTLOOK)

Improvement in management practices, evidenced by the implementation of strategies to reduce reliance on reserves and elimination of qualified audit opinions

The Town has already taken steps to reduce alliance on reserves. In the past the town used every cent of free cash to balance its operating budget to the point we are broke. The Town has voted to expend its stabilization accounts to meet its operating costs. Basically, we have used up all the money in our piggy bank.

The new financial team is trying to correct major problems from the past accountant’s practice of reporting out qualified audit opinions, which only a CPA can do. These ‘qualified audit opinions” were deemed acceptable by the DOR, but apparently Moody’s takes a different view.

Hopefully, our new financial team can help the town recover financial stability. It will take time. Let’s hope we don’t end up like Detroit!

I have been saying for years we should not be using all of our Free Cash to fund our operating budget.

My opinions…supported by FACTS ! ! !

Julie Farrell

30 comments:

  1. I'm glad to hear you say that Julie. I hope the rest of the select board agrees, and insists on putting all free cash into stabilization fund. We should not use free cash to fund the schools as part of a compromise.

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  2. We can only advise and recommend. The ultimate decision will be up to the voters in Templeton. If we can reach a compromise figure of $300,000 - $350,000 with the school committee AND we don't use free cash, then another override attempt will be necessary to fund a compromise. Without an override, drastic cuts to public safety will be necessary.

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    1. Mrs. Farrell, Why do you keep advocateing and threatening "Drastic public safety cuts" when there would be much better places to cut IF NEEDED? I would rather have a police force than a cemetary force, for instance. How about the Hwy dept instead of the guys that keep us safe n secure?
      Everyone warned us this would happen if the original override failed. The state will ensure adequate funding of the school & nothing more.
      You made your bed when you voted no& now its time to sleep in it.

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    2. exactly how will the police get to you to keep you safe n secure? How will the fire dept. get to you if the roads are not plowed. State police can be asked to do some routine patrols in town. But drastic public safety cuts are not threats, just one possible route to travel. When an override fails multiple times, one may want to consider other options such as administration cuts but I did not make that bed. and again, I will discuss compromise with members of the school committee & superintendent rather than a huff n puff on the internet.

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    4. I'm happy to see that about advise and recommend. I voted for the over ride because I knew this mess would happen. I also say if people choose to vote for the school and are ok with cutting from the town then that is the will of the people. Had the over ride past we wouldn't need to keep up this long process. The towns people want sports in their schools and aren't willing to give that up. I can't fault them for that. Plus the school isn't going to give up sports so thankfully if people do not play nice at up coming town meeting the school won't except the budget and let the state determine it. I personally think after reading this blog and talking with towns people its the best choice we have. I can't help but think this is why certain countries have dictators!

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    5. I want to follow that up with saying I'm not a supporter of a dictatorship, but this torn town can really complicate things so I feel for both sides that are frustrated about not having money or what they feel is best for their kids or future generations.

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    6. For The People ,You said that if the towns people don't play nice at the up coming meeting then the state will come in and set the budget . All well and fine ,but do you realize that the state can NOT raise our Taxes ,only the towns people can do that . And furthermore did it ever occur to you that the state may very well find the money within the school itself ? I don't have all the answers but I would encourage the state to come put this to rest ONCE AND FOR ALL .I for one am sick and tired of people using the STATE as a threat . I can live with any answer as long as its the right one .

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    7. Do any of you questioning staffing at the schools even know what is state mandated or not? Both the SC & Supt have asked for suggestiond on what to cut at both mtgs! They have asked for help from everyone. Maybe ig you were their, or even asked you would know this. Go to the mtgs if you want to be involved. If not, be quiet & pay your taxes.

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    8. Oh. & GG pushed for the override so the town wouldnt suffer. They actually did their research & knew what the end result would be. Exactly what is happening now. They seem to be the only ones worried about the ENTIRE town.

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    9. Kirk,
      I think we all understand that the State can't raise taxes - what they can do, though, is mandate a budget that will force Templeton to either vote an override or make massive spending cuts to fund.

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    10. Huff N Puff
      After some of your comments, I have to ask what are you huffing?

      To suggest, nevermind state, that GG is worried about the ENTIRE town is a real stretch.

      I am not advocating drastic cuts in public safety, but there is no other place in the town budget to come up with $691,00 or $565,000. If you cut the entire cemetery department , you get $198,000.

      It is what it is. The school committee needs to present a compromise figure. A reduced compromise figure will still result in cuts to public safety, if there is no override.

      I truly believe :
      NO COMPROMISE will equal a NO VOTE at the Joint STM on August 22nd.

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    11. Julie - Does the town have obligations, as in perpetual care for money received, that would make liquidating the cemetery budget a legal problem?

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    12. It may. Many of the town departments operate under MGL or statutory regs. BOH, assessors, collector, treasurer are some examples.

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    13. Mrs Farrell. The reason I believe that about GG is becausr they have been advocateing for the oberride from the get go so NO cuts are made anywhere.
      On another, seperate note. The school has been cutting for 10 years now. Nobody seems to give them ctedit for that. In that reality, if this is where they decide to draw the line in the sand, I say, good on them. Its about time some town dept stood up for themselves to the town & its people that dont want change.
      They warned you this was comeing. You shoulda pushed for the override, because the state will make sure the school is funded. Research Sterling, Winchendon or many others.

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    14. Mr. Green The state forcing a override LOL I already know what the answer is . The point I was trying to make is simply this . The department of education looks at all the books , then they suggest what money is or is not going to come from the town to support the school budget . As I said before , BRING IT ON . tell us, then we will ALL know .

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  3. Good point Julie. People look to the BOS for leadership. You can certainly explain the downside to having zero in the stabilization account. I hope that the BOS advises against such a plan.

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    1. I was surprised when Phillipston went to their stabilization account to pay for the money they needed for the school. I understand how hard it is to get back, when it is gone. This has been a hard lesson to learn. For the life of me, I can not understand why how the DOR could have allowed our former accountant and past coordinator to get us in the mess we are in now. Given the over site these people have to town finances, the DOR has their share of the blame from where I sit. I would hope the people who want more for the school understand where we stand after this "grand announcement". When we say we are broke, that says it all. Bev.

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  4. Could someone more knowledgeable than myself explain something to me:

    I thought the Sewer Enterprise fund was separate from the "Town"'s finances, so why does the Moody's report include transfers from the Town to the Sewer Dept as one of the factors in the downgrading.

    I know that the argument has been made that the DESE figure is incorrect because it includes the Sewer Enterprise in its calculation, but we now have both DESE and Moody's including the Sewer Enterprise in their calculations.

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  5. The sewer enterprise fund is reported on the schedule A of the recap sheet. Receipts (income from sewer users, tipping fees, sewer tie ins) are reported on Pg 2 part IIIb line 3 and appropriations are reported on pg 4 the certified appropriations page because we vote on what the sewer dept can spend (ATM) this is for the running of the sewer dept. What is transferred from the general fund is the sewer debt (projects)which if you all remember was voted at a TM that the sewer users would pay part through betterments and the rest would be raised through taxation. correct me if I'm wrong Julie.

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  6. you may wish to check there is a school committee meeting posted for August 5, 2013 at the kiva at 6:30 PM and I would attend but I be at the selectmens meet on Monday at the same time, in case anyone wonders why no selectmen are there.

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  7. I will be happy to report back about matters discussed.

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  8. one of those things where a quick check and perhaps school comm has its meet on Tuesday so selectmen could attend. and thank you.

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  9. I e-mailed the complete report to Pauly at the e-mail address given on this blog.

    The report emphasizes the importance of a plan to increase reserves:

    "Further weakening of town reserves could
    lead to additional rating pressure."

    Additional rating pressure usually means we must pay higher interest rates because we're more of a risk.

    On the plus side, we have an "aggressive" debt repayment plan. We'll get more breathing room once 252 Baldwinville Rd is sold. That is money that will ultimately build our reserve if we have the self-control to not immediately spend it.

    Also, here is a quote from the Moodys report:

    "While costs associated with the town's portion of local education expenses constitute almost 50% of the town's spending, Moody's notes that the town's operations would have been balanced if not for substantial annual support provided to the local sewer system."

    Nearly 50% of town spending is on education.

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  10. It seems like the sewer debt is the real problem.

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  11. It's a combination of sewer debt and increased educational assessments coupled with declining reserves.

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