Harwich Joins AAA Credit Club: Upgraded Rating Will Mean Savings On Borrowing

By: William F. Galvin

Topics: Municipal Finance

It was a good week for Harwich with S&P Global upgrading the town's credit rating to AAA, and last Friday Town Administrator Christopher Clark accepting a check from the Commonwealth for $152,910 for becoming a Green Community. The funds will be used to upgrade energy efficiency in the boiler system at Brooks Free Library. WILLIAM F. GALVIN PHOTO

HARWICH — The town and Monomoy Regional School District received good news this week from bond rating firm S&P Global, which upgraded the town's credit rating to AAA.

That could mean substantial costs savings on borrowing. The change is particularly welcome with the town embarking on a multi-million dollar sewer project in the coming years.

“Having the AAA rating ensures that the town will enjoy low interest rates when it sells Series 2019 General Obligation Bonds on June 4,” Finance Director Carol Coppola wrote in an email to The Chronicle. “These bonds were previously approved by voters to finance capital improvements for the fire station, Cranberry Valley Golf Course improvements and wastewater design and engineering. The rating is significant as it allows Harwich to continue financing capital projects at the lowest possible cost.”

The town’s financial strength and sound management also bodes well for the school district, because its bond rating is based on the lower of the two ratings for Chatham and Harwich. Harwich was previously rated AA-plus and Chatham AAA; now both communities have the AAA rating which will reduce general obligation borrowing costs for the school district.

“The stable outlook reflects our expectation that Harwich’s very strong economy and management team will continue its proactive approach to supporting improved funding of the town’s long-term liabilities. The stable outlook also reflects our view that the town’s improved reserve position insulates it from unexpected weather events or economic disruptions that could dampen revenue or economic trends. As a result, we do not expect to change the rating during the two-year outlook period,” the rating report states.

“I’m thrilled with what we achieved on behalf of the town,” Town Administrator Christopher Clark said on Monday. “The AAA rating has been a significant challenge, and to have S&P Global recognize the commitment our financial team has made to adhere to S&P’s principles of good financial management is a great reward.”

The report highlights the town's strong management and good financial policies and practices. According to the document, the town’s management team provides stability in its operations while adhering to policies and procedures that are regularly monitored. Management also employs conservative budget assumptions when creating revenue and expenditure forecasts.

The town was praised for maintaining no less than 7 to 8 percent of general fund expenditures in reserve and its efforts to build reserves toward 18 percent of expenditures. The report also commends a strong focus on capital planning, specifically the town’s capital plan and the annual updates of the five-year budget forecast. It also noted the use of a formal debt management policy that limits general fund debt service to 10 to 12 percent of expenditures.

According to the report, “The fiscal 2020 budget totals $72.3 million (including school expenses), representing an increase of about 7.7 percent over the prior year. It is balanced, and the town strives to maintain the current level of services and support technology staffing needs and wage increases to remain competitive with other Cape Cod communities. Based on a property tax levy increase of 8.2 percent (consisting of tax base growth and a levy increase), we believe the town’s budgetary performance will remain strong with operating revenue fully covering higher expenditures.”

The report's economic assessment speaks favorably of Barnstable County and notes that Harwich has a projected per capita effective buying income of 142 percent of the national level and a per capita market value of $439,593. Overall, the market value of property in town grew by 7 percent over the past year to $5.7 billion.

“Harwich thrives as a second-home community and is evolving into a year-round destination. With re-development of high-end homes continuing, new commercial and office space expansion is ongoing,” S&P wrote.

It continued, “Although seasonal employment—such as retail trade, accommodations, and food services— accounts for a large portion of the local employment base, we believe the town’s economy will remain strong with diversification driving tax base growth and a great base of full time residents,” the report states.

The report praised the town in several other areas including very strong budgetary flexibility with an available fund balance in fiscal 2018 of 17 percent of operating expenditures and very strong liquidity, with total government available cash at 28.1 percent of total government fund expenditures. The report called the debt and contingent liability position of the town “very strong.”

Clark, in an email to Selectman Larry Ballantine, praised Coppola for all the documentation she provided for the report and for working to implement recommended controls.

S&P focused this year on sea level rise and the town’s preparedness to meet those concerns. Clark praised Town Planner Charleen Greenhalgh for doing an outstanding job in responding. He said coastal resiliency actions taken already as well as those in the planning stages were crucial to the upgrade. He also pointed out Treasurer Amy Bullock’s strong tax collection percentage was highlighted in the report.

The town has had a number of major capital projects in recent years, including the sewer project, construction of two schools, a fire station and improvements to three harbors, Clark said. The report indicates the town has addressed these challenges in a fiscally responsible way, he pointed out.

“The AAA rating means the town has addressed those projects in a professional and fiscally conservative way,” Clark said. “To have our bond rating improve in a fiscally challenging time is pretty incredible.”

Selectman Stephen Ford said he has represented many cities and towns across he country while working in the banking industry and funding major capital projects, and they all wanted the AAA credit rating. It is a rare achievement, he said.

“It shows strong financial management and financial planning and this is not easy to obtain,” Ford said.

The report offers some words of caution. “Although unlikely, we could lower the rating of the town’s long history if strong budgetary performance were to reverse and lead to declining reserves or if the sewer improvement project required significantly more debt than expected, resulting in deterioration in the town’s debt position.”