Council Hears From Financial Experts

It was an interesting workshop last week held by our Town Council. The agenda read, "Municipal Finance 101: A Primer on Municipal Finance" and it turned out to be just that. Panel speakers included Jim Wilkinson of the Braver Group and PFM Financial Advisors staffers Bill Fazioli and Steve Maceroni. The panelists begun the presentation by discussing a community's bond rating. They defined the term "bond rating" as " a measurement of an entity's ability and willingness to manage its resources in order to meet its obligations". It is the primary indicator of a community's fiscal health. The factors that are used by bond-rating agencies to assess the fiscal health of a community are:

1. Management- What is the track record of revenue forecasts and expenditure controls? What is the level of fund balance (the Town's savings account)? Does the Town use multi-year financial planning and do they have a capital infrastructure plan? Does the governance structure foster professional financial management?

2. Economic/Demographic- What is the size and diversity of the tax base? What are the growth trends? What are the Town's income/wealth measures?

3. Debt- What is the Town's debt burden? What is the status of the Town's pension and retiree health insurance liabilities?

4. Financial- What is the present and historic fund balance? How much financial flexibility is there in case of an emergency? What are the trends of revenue sources?

The panelists also made a series of recommendations to stabilize and improve our present bond rating (Moody's Aa2):

1. Increase the Town's Fund Balance or Financial Reserves- The Town has a policy of maintaining an 8% of net operating expenses fund balance policy but only presently has appx. 4% in fund balance. The industry standard is the equivalent of 16% of net operating expenses and I have recommending a plan that increases our fund balance every year until we meet the 16% goal.

2. Engage in Long-Range Financial Planning- Both the operating budget and Capital Improvement Plan should be part of a long range financial plan.

3. Improve Budget Flexibility- Fund at least some of your Capital Infrastructure Plan with cash as opposed to borrowing for the entire plan.

4. Continue to expand tax base and foster economic growth- The importance of an expanded tax base, that is consistent with a Town's Comprehensive Plan, is an important component of a Town's bond rating.

5. Careful Management of our Pension and Retiree Health Insurance Liabilities- A bond rating agency evaluates our long range plan to address pension and related liabilities.

Each one of these recommendations have been addressed in the budget package that I submitted to the Town Council. I will discuss each issue next.