November 20, 2013

Princeton Receives Gold Star in Recent Credit Rating Reports

Princeton has received top ratings from two of the three leading credit rating agencies that publish financial research and analysis on stocks and bonds. The bond credit ratings represent the town’s credit worthiness and are used by investment professionals as an indicator of how likely it is that a debt will be repaid.

Standard & Poor’s AAA rating indicates that the town has an extremely strong capacity to meet its financial commitments. This year, only 3 percent of New Jersey’s 565 municipalities were rated AAA by the New York City-based rating agency.

Similarly, Moody’s Investors Service’s Aaa rating means that the town is judged to be a minimal credit risk.

These are the first credit evaluations for the town since consolidation of the Borough and the Township in January of this year. The indication of fiscal health allows the municipality to borrow at lower interest rates.

Before consolidation, the Borough and Township recorded high ratings. Standard & Poor’s gave Princeton Township a AAA rating and Princeton Borough AA+, its second-highest rating.

Mayor Liz Lempert said that the ratings “speak to the fact that the [consolidated] municipality is on a solid footing.”

The ratings came in just before the sale of municipal bonds last Thursday, November 14. The bond sale helps the town refinance some $19 million of debt from a 2006 bond issue from the former Township and a 2003 bond issue from the former Borough.

The consolidated municipality has a debt of almost $97 million; approximately $64 million from the Township and $32 million from the Borough.

“The bond sale went well. We had seven bidders, and 57 total bids. The winning bidder is UBS Financial Services at a true interest rate of 2.4 percent. It will alleviate our debt service, saving over $1 million for the length of the bonds,” said Princeton’s Director of Finance Kathryn Monzo, a former financial officer of Princeton Township. “This is a 5.7 percent savings over the bonds refunded.”

“We are very pleased with the outcome of Thursday’s bond sale, and the resulting savings of $1 million,” said Ms. Lempert.

In a press meeting last week, Princeton Administrator Bob Bruschi acknowledged that the amount of debt being carried by the municipality was of concern to at least one of the rating agencies, Moody’s.

Princeton’s Citizens’ Finance Advisory Committee, a five member body comprised of Scott Sillars, Brian McDonald, Will Dove, Adrienne Kreipke, and Gary Patteson, has warned Council that incurring debt for new capital expenditures in the next few years would put pressure on the town’s finances.

“Everyone on Council is cognizant of our debt load,” commented Ms. Lempert, yesterday. “The Citizens Finance Advisory Committee and the finance staff are putting together a recommended process for establishing a capital plan so the Council can make more informed decisions. In the meantime, at next Monday’s meeting, Council will be voting on a proposed schedule for the 2014 budget.”

“Finance is working on a six year capital plan, along with the Citizens Finance Advisory Committee, which will include a debt management policy going forward,” explained Ms. Monzo. “The idea is to be able to accomplish needed capital improvements without increasing our debt burden. The rating agencies noted our high debt burden, but also noted that we have a healthy paydown schedule of our debt.”

According to Mr. Bruschi, the presence of Princeton University and the annual voluntary payment in lieu of taxes it makes to the town “helps underscore Princeton’s tax collection capabilites. This, coupled with an annual contribution agreement, helps build the solid financial footing that ratings agencies want to see in communities and their ability to pay the debt that is incurred,” he said.

Princeton University makes a voluntary annual payment-in-lieu-of-taxes to the town. Last year, the payment was almost $2.5 million.

“The fact that we have a good-standing relationship with the University, is looked upon as favorable by both rating agencies,” Ms. Monzo said.