By Greg Goldfarb
Look at it this way: a city government’s bond rating is like a person’s credit score – the better it is, the more you can do.
In the City of Suffolk’s case, its credit is excellent, meaning that when city officials need to borrow money for community improvements and development, it’s no problem.
“Having a strong bond rating allows the city to borrow money for capital improvements, at the lowest interest rates available in the financial market, which saves the city and its taxpayers millions of dollars in interest payments over time,” said Tealen Hansen, Suffolk’s finance director. “Some examples of capital improvements include, school replacements, road improvements and renovations and maintenance of city buildings and facilities, all of which add to the quality of life of citizens in Suffolk.”
For the fourth consecutive year, the City of Suffolk’s three bond ratings agencies — Fitch Ratings, Moody’s Investors Service and S&P Global Ratings — have affirmed the city’s AAA bond rating, which means that the city has an excellent credit status and that its future financial outlook is stable. Fitch Ratings is the latest to confirm this with its announcement in late July.
The superior rating also represents the overall credit-worthiness of Suffolk’s government-issued bonds, according to William Franklin, media and community relations, City of Suffolk. It also provides assurance that the city has high quality bonds, with the least amount of risk, and that both the principal and interest on the bonds will be paid on time and in full.
In finance, a bond is a type of security under which the issuer, or debtor, owes the holder, or creditor, a debt. The debtor is then obliged, depending on the terms, to repay the principal — that is the amount borrowed — of the bond at the maturity date, as well as interest over a specified amount of time, according to online data.
In his notification to city officials, Fitch said that the city’s ability to raise revenues and solid expenditure flexibility support a superior level of inherent budget flexibility, and that Suffolk has healthy reserve balances that support a high level of financial resilience.
“The city maintains a conservative approach to budgeting revenue and expenditure growth,” said Hansen. “Instead of projecting the best case scenario for revenue growth in developing the annual budget, which may or may not come to fruition, the city is more realistic in its revenue forecasts. This results in greater chances of meeting, or exceeding, revenue projections and improves chances for year-end surpluses, which are needed to maintain a healthy reserve balance in case of unplanned expenses, economic downturns, or emergencies.
“The city also strives to keep expenditure growth at a modest level within available resources,” continued Hansen, “and does not budget for vacancy savings, which provides flexibility to cover unplanned expenses that occur during the year.”
Moody’s rating reflected the city’s continued growth and diversification of the tax base, including healthy resident income levels, according to Franklin. It further noted that Suffolk’s finances are strong and support formal fiscal policies and conservative budget assumptions.
“The city continues to add new and expanding businesses and residential growth and development, which facilitates a healthy local economy, provides job and wage growth, and increasing levels of household income,” said Hansen. “The city maintains strict adherence to its financial policies which promote fiscal stewardship.”
Standard & Poor’s recognized Suffolk’s consistent and robust operations that bolster already very strong finances.
“The city strives to be consistent in the level and quality of services that it provides to its citizens year in and year out,” Hansen said. “This means, providing the full spectrum of municipal services, such as weekly trash collection, water and sewer, adequate fire and police protection, sufficiently maintained roads and parks, adequate levels of health and social services, among others without major disruptions or fluctuations in service. The city’s stable finances allow for this consistency in providing services to our community.”
For the City to attain and retain its AAA bond status, its annual operating budget must be managed as efficiently as possible, allowing not only for recurring expenses, such as payroll and maintenance, but it must also predict the unpredictable.
“The city has established financial policies which govern how the amount of fund balance reserves are maintained to support city operations in the event of an economic downturn or emergency event, such as a bad hurricane,” Hansen said. “The financial policies require the city to maintain a certain percentage of reserves in fund balance, as compared to budgeted expenditures. In the event of an event or economic disruption, the city has the ability to tap into reserve funds to ensure critical services continue without disruption and without taking on debt to finance ongoing operations.”
The city of Suffolk’s 2022 fiscal year operating budget is $698,200,696, compared to $767,571,838 for fiscal year 2023.