AAA bond ratings paint a healthy financial picture for the City of Suffolk – The Suffolk News-Herald

By Greg Goldfarb

Contributing Author

Think of it this way: a city government’s bond rating is like a person’s credit rating – the better it is, the more you can do.

In the case of the City of Suffolk, its credit rating is excellent, meaning that there is no problem when city officials need to borrow money for community improvement and development.

“A strong bond rating allows the City to borrow money for capital improvements at the lowest rates available in the financial market, saving the City and its taxpayers millions of dollars in interest payments over time,” said Tealen Hansen, Suffolk’s Treasury Director. “Some examples of capital improvements include school replacements, road improvements and renovations, and maintenance of town buildings and facilities, all of which contribute to the quality of life for Suffolk citizens.”

For the fourth consecutive year, the City of Suffolk’s three bond rating agencies – Fitch Ratings, Moody’s Investors Service and S&P Global Ratings – have confirmed the City’s AAA bond rating, meaning that the City has excellent credit and future financial prospects is stable. Fitch Ratings confirmed this with its announcement at the end of July.

According to William Franklin, Media and Community Relations, City of Suffolk, the excellent rating also represents the overall creditworthiness of Suffolk’s government-issued bonds. It also provides assurance that the city has the lowest-risk, high-quality bonds and that both principal and interest on the bonds will be paid on time and in full.

In finance, a bond is a type of security where the issuer or obligor owes a debt to the holder or creditor. The borrower is then required, depending on the terms, to repay the principal amount – i.e. the amount borrowed – of the bond on the maturity date and the interest over a certain period of time, according to online data.

In his note to city officials, Fitch said the city’s ability to grow revenue and robust spending flexibility support a superior level of inherent budgetary flexibility and that Suffolk has healthy reserves supporting a high level of financial resilience.

“The city maintains a conservative approach to budgeting for revenue and expenditure growth,” Hansen said. “Rather than anticipate the best-case scenario for revenue growth when developing the annual budget, which may or may not materialize, the city is more realistic in its revenue projections. This results in a greater chance of meeting or exceeding sales projections and improving the chances of generating the net income needed to maintain a healthy reserve balance in the event of unplanned expenses, economic downturns or emergencies.

“The city is also committed to keeping spending growth at modest levels within available resources,” Hansen continued, “and is not budgeting for vacancy savings, which provides the flexibility to meet unplanned expenses that arise throughout the year.”

According to Franklin, the Moody’s rating reflected the continued growth and diversification of the city’s tax base, including residents’ healthy income levels. It also noted that Suffolk’s finances are strong and supported formal fiscal policies and conservative budgetary assumptions.

“The city continues to add new and expanding businesses and residential growth and development, which fosters a healthy local economy, provides employment and wage growth, and increases household income,” Hansen said. “The city strictly adheres to its fiscal policy, which promotes fiscal responsibility.”

Standard & Poor’s recognized Suffolk’s consistent and solid operations, which bolsters already very strong finances.

“The city strives to maintain the level and quality of service it provides to its citizens year after year,” said Hansen. “This means providing the full range of municipal services, such as weekly refuse collection, water and sanitation, adequate fire and police protection, adequately maintained streets and parks, adequate health and social services, among others, without major disruption or fluctuation in service. The city’s stable finances allow for this consistency in providing services to our community.”

In order for the city to achieve and maintain its AAA bond status, its annual operating budget must be managed as efficiently as possible, taking into account not only recurring expenses like payroll and maintenance, but also anticipating the unpredictable.

“The city has established financial guidelines governing how to maintain levels of fund balance sheet reserves to support city operations in the event of an economic downturn or an emergency such as a major hurricane,” Hansen said. “Fiscal policy requires the city to maintain a certain percentage of reserves in the budget balance compared to budgeted spending. In the event of an event or economic disruption, the city has the ability to draw on reserves to ensure essential services can continue uninterrupted and without borrowing to fund ongoing operations.”

The City of Suffolk’s operating budget for FY2022 is $698,200,696 compared to $767,571,838 for FY2023.

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