BURLINGTON — Money borrowed by taxpayers to improve the credit rating in the state’s largest city has resulted in savings, according to city officials.
According to a report released Monday, the city’s $9 million Fiscal Stability Bond, meant to stabilize municipal finances by moving away from “risky” short-term borrowing, has played a key part in the city saving $388,765. The bond is now in its second year.
The Fiscal Stability Bond was one of the first actions taken by Mayor Miro Weinberger after he was elected in 2012. He argued the bond would improve the stability of the city’s finances, which had been impacted negatively by a lawsuit involving the city’s municipal cable system.
In 2012, voters approved the bond with 72 percent support. At the time, the city’s credit rating had been downgraded “to the edge of junk bond status,” and officials were concerned about having enough money to cover expenses, according to the report.
This week’s report, from Burlington’s Chief Administrative Officer Bob Rusten, notes that the $388,756 in savings for the most recent fiscal year, can’t be attributed solely to the bond, but rather the city’s all-around improved financial outlook. Another major factor was the 2014 settlement of the Burlington Telecom case for less than what many anticipated.
“That being said, the voter-approved FSB was the first step” in stabilizing city finances, Rusten writes in the report presented to the Board of Finance at its most recent meeting.
The $9 million bond has a higher interest rate than the previous short-term borrowing, but it’s saving taxpayers money because of the stability and liquidity it has created.
The credit rating agency Moody’s Analytics has cited the bond as a “significant factor” in the city’s improved credit rating, and is the “primary reason” that the city now has access to the Vermont Municipal Bond Bank, according to the report. Being able to work with Vermont Municipal Bond Bank gives the city access to the state’s lower interest rates, and allowed it to refinance its wastewater debt at those lower rates.
The report revises down the amount of savings from the first year from $55,000 to $29,539, for a total of $418,295 over two years. That’s because last year’s report understated the interest payment on the stability bond by $25,000, according to Rusten.
The report also lists what savings would have been compared to a hypothetical scenario in which Burlington had seen its credit rating reduced to junk bond status. Those savings are projected at $1.7 million over two years.
City Councilor Sharon Bushor, I-Ward 1, dismissed the projected savings as “speculative,” when the report was discussed at Monday’s Board of Finance meeting, saying she would prefer to focus on the actual savings.
Weinberger said the estimate is valid because a further credit downgrade was likely if the city had not issued the stability bond. Moody’s had given Burlington a negative outlook, he said, suggesting another downgrade was coming.
City Councilor Karen Paul, D-Ward 6, said that either way “there is little doubt that it increased our ability to help our credit rating and it did save us real money.”
