, Salem, MA

April 22, 2013

Peabody mayor hails city's strong bond rating

By Alan Burke
Staff writer

---- — PEABODY — If you could see yourself as others see you, it might be a terrific advantage.

The city gets that advantage when its credit worthiness is rated by an investor service like the New York City firm Moody’s, which has pegged Peabody at Aa1, the second-highest rating possible.

“I’m celebrating,” Mayor Ted Bettencourt said, explaining that the rate is one of the best on the North Shore.

A good credit rating has an effect on what the city spends to borrow money. Peabody recently sold more than $10 million in bonds to the Bank of America Merrill Lynch for library repairs, water treatment, flood mitigation and some earlier debt, and Moody’s assessment allowed the city to borrow at a rate of 2.03 percent.

This will bode well, the mayor indicated, when the city is rated again while attempting to bond for the new Higgins Middle School, now estimated to cost $92 million.

“Moody’s certainly knows this is coming,” he said. The state has agreed to pay $43.6 million of the cost.

On taking office, Bettencourt said, his goal was to “make sure we kept the bond rating high,” thus making the school project more affordable. “That’s going to save us tens of thousands of dollars.”

Bettencourt praised the administration of former Mayor Michael Bonfanti in keeping Peabody’s bond rating solid.

“The city has been financially well-managed in the past,” he said, and with the exception of a few years during the economic downturn, the rating has remained at Aa1.

In its report, Moody’s listed the city’s strengths as its “sizable, diverse tax base” (a counterbalance to “ongoing weakness in the regional residential real estate market”), its ability to raise taxes under Proposition 21/2 due to unused levy, and roughly $1 million in free cash.

“Free cash is like a savings account,” explained the city’s finance director, Patty Schaffer; it’s money saved over the course of a year. Lenders like to see it at about 10 percent of the budget.

“It acts as a rainy day fund,” Bettencourt said.

Moody’s report adds that the city will have a budget surplus for the third straight year. Further, Peabody has moved its employees to the state health insurance plan, which is seen as a “positive” likely to contribute to the city’s economic health.

“The top taxpayer,” Moody’s said, “the Malls at Northshore LLC, remains stable with 99 percent occupancy rate and remains a longtime taxpayer for the city.”

The median family income of $76,000 is about average for the state, but above average nationally. Unemployment at 6.8 percent is better than the state average.

On the other hand, Moody’s cites some economic challenges, including “state aid reductions” and “substantial long-term pension” and benefits owed to past employees. In addition, they point to deficits at the city skating rink — although those are blamed on one-time problems such as equipment failures.

The city currently services $45 million in debts, according to the report.

Challenges notwithstanding, Moody’s reports, “The city’s financial position is expected to remain stable in the near term ... due to management’s commitment to conservative budget practices.”