Increased reserves spur an upgrade for Vermont's biggest city
Fund balance discipline led Vermont’s most-populous city to its third credit upgrade in less than three years.
Moody’s Investors Service upgraded Burlington's general obligation bonds one notch to A2 from A3 Monday ahead of a $7.3 million GO public improvement bond sale slated for Dec. 5.
The city's ratings have rebounded after troubles with a city-owned telecom enterprise drove its rating as low as Baa3 from 2010 to 2012.
The city forged a $10.5 million settlement with Citibank in 2014, after the banking giant sought more than $40 million for unpaid portions of a lease-purchase agreement related to the unsuccessful Burlington Telecom venture. That allowed city officials to move forward and focus on budget improvements.
“The upgrade to A2 reflects the city's improved financial position with sound reserves following four consecutive years of operating surpluses, as well as the city's strength as the economic center of Vermont,” said Moody’s analyst Chris Salcedo in the report. “The rating also incorporates rising fixed costs in the face of a somewhat challenging revenue raising environment, significant pension liabilities and ongoing enterprise risk associated with Burlington Telecom.”
City officials funded the Burlington Telecom settlement largely with $6 million in bridge financing from Blue Water Holdings through the sale of telecom enterprise assets. The financing, which carries a 7% interest rate, was led by local investor Ray Pecor III and financed by a loan from Merchants Bank.
Mayor Miro Weinberger has credited voter approval of a $9 million fiscal stability bond in November 2012 with being an instrumental part of the city’s fiscal turnaround since it enabled it to reduce reliance on short-term financing. The Democratic mayor has also spearheaded improved financial management protocols that were noted in past audits including producing monthly budget reports.
Burlington is planning to use proceeds from the upcoming bond sale to finance various infrastructure projects that are part of the city’s 10-year capital improvement plan. The city, whose population was 42,200 in the 2010 U.S. Census, has $106.8 million of outstanding GO debt, according to Moody’s, which does not typically assign outlooks to local governments with this amount of debt outstanding.
Salcedo noted that Burlington could see further bond upgrades if city management continues with surplus operations and shows material growth in reserves and liquidity. He added that downgrades could result if the city shows a renewed reliance on cash flow borrowing or if there is retention of significant contingent liabilities resulting from the Burlington Telecom sale.