Cambridge Retains Rare Distinction of Earning Three Triple A Ratings


2/10/2011

Cambridge City Manager Robert W. Healy announced that the City of Cambridge has earned the rare distinction of being one of approximately 30 municipalities in the United States with three Triple A ratings from the nation's three major credit rating agencies.  The city has received Triple A ratings from Moody's Investors Service, Standard & Poor's and Fitch Ratings every year since 1999.

These ratings are in conjunction with the City's sale of $46.2 million in General Obligation bonds, which is scheduled to take place on February 15, 2011 to finance such capital projects as the CRLS Renovation Project, Sewer Reconstruction Projects, Radio System Replacement, Old Police Station Renovation Project, Roadway Improvements in Harvard and Kendall Square, Building Improvements and the renovation of the soccer field at Danehy Park.

Standard & Poor's reaffirmed its "strong" Financial Management Assessment (FMA) of the City of Cambridge.  An FMA of "strong" indicates that practices are strong, well embedded and likely sustainable. The strong rating indicates that the government maintains most best practices deemed critical to supporting credit quality and that these are well embedded in the government's daily operations and practices. Formal policies support many of these activities, adding to the likelihood that these practices will continue into the future and transcend changes in the operating environment or personnel.   

“Based on this ongoing recognition from the rating agencies, especially during these challenging economic times for municipalities, the City Council can be justly proud of its sound fiscal policies,” Healy said in his report to the Cambridge City Council submitted on Monday, February 7, 2011.

Below are highlights from the Moody's and Fitch agency reports. Standard & Poor's confirmed the City’s Triple A rating and "strong" FMA rating but their report was not available in order to provide highlights.

Fitch Ratings

Rating Rationale

  • Cambridge's exceptional financial management is characterized by its high reserve and liquidity levels.
  • Conservative budgeting practices along with a use of reserves the last two years has helped keep tax levy increases at moderate levels while the city faces increases in education and public safety costs.
  • The stable presence of higher education, health care, biotechnology, and life sciences industries supports the well-diversified economy with low unemployment and above-average wealth levels.
  • Growth in assessed value provides the city with tax levy flexibility for operations and debt service as the gap between the city's actual tax levy and the statutory levy limit has grown to its highest level in the city's history.
  • Debt levels are moderate and expected to remain manageable, aided by the city's rapid amortization rate.

 Key Rating Driver

  • Ongoing sound financial management, which has benefited the city's financial position.

Highlights

Fitch notes that Cambridge's substantial $99.4 million of excess levy capacity under Proposition 2 1/2, along with its considerable reserve levels, provide the city with ample flexibility to weather the effects of the economic recession.

Exceptional financial management and planning are demonstrated by the city's strong financial position. The city had planned draws on its general fund reserves in fiscal 2009 and 2010 to keep tax levies at moderate levels and fiscal 2010 unreserved general fund balances declined to $129.5 million from $141.6 million in fiscal 2009, but still equaled a high 31% of spending.

Moody's Investors Service

Summary Rating Rationale

The Aaa rating reflects the city's large, diverse and stable tax base, which is anchored by prominent higher education institutions and a growing research and development sector.

Also incorporated into the Aaa rating are an exceptionally strong and resilient financial position which has performed well through the national economic downturn, management's consistently conservative approach to budgeting and a favorable debt profile supported by healthy enterprise systems and historically strong commonwealth school construction aid.

Strengths
 

"Large and diverse tax base anchored by stable universities"

"Robust financial position guided by sound management policies"

Highlights

INSTITUTIONAL PRESENCE AND STRONG GROWTH IN RESEARCH & DEVELOPMENT MAINTAIN TAX BASE STRENGTH AND DIVERSITY

Cambridge's economy benefits from the presence of Harvard University (rated Aaa/stable outlook) and the Massachusetts Institute of Technology (MIT, also rated Aaa/stable outlook)--which together enroll 28,400 students and provide employment for over 18,000 full-time equivalent positions--and the related vibrant biotechnology, pharmaceutical and life sciences employment base. Together these institutions comprise 43% of the jobs provided by the city's top 25 employers while building permits issued to the universities historically represent a significant portion of the city's annual activity.

CITY MAINTAINS STRONG RESERVE POSITION DESPITE PRESSURE ON STATE AND LOCAL REVENUES

Although Moody's expects local governments' recovery from the recession to lag the general economic recovery, Cambridge is expected to maintain a healthy financial position in the near term. The city continues to benefit from high financial flexibility and robust reserve levels, which position it to absorb several years of flat or declining state aid and local revenues with only moderate declines in reserves. Cambridge's strong management team has historically followed a prudent fiscal strategy, and beginning in fiscal 2008, follows formally adopted fiscal policies for its annual budgeting. Steady revenue streams, generated by its substantial and economically vibrant tax base, provide a notable degree of flexibility to address future budgetary challenges.

Additional flexibility is derived from Cambridge's ample excess property tax levy capacity under Proposition 2 1/2, historically maintained at robust levels and currently the highest of any Massachusetts city or town. Despite recessionary pressures and sluggish local revenue growth, the city's excess levy capacity reached $99.4 million in fiscal 2011 and has more than tripled since fiscal 2003 due to strong tax base expansion and controlled expenditure growth.

AFFORDABLE BURDEN WITH MANAGEABLE PUBLIC INVESTMENT PROGRAM

Moody's expects the city's debt obligations to remain affordable given a sizeable level of self-supporting debt, and a rapid principal retirement schedule.

Self-supporting water and sewer enterprise debt as well as the city's pay-as-you-go funding plan, budgeted at approximately $2 million annually, also contribute to Cambridge's favorable debt ratios.

WHAT COULD MOVE THE RATING DOWN: 

Significant reduction in reserve levels or property tax levy capacity 
Adoption of less conservative approach to budgeting and financial management 
Deterioration of tax base or local economy

 

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