West Tisbury rates high despite credit woes
Financiers are finding few nuggets of gold in the crucible of the financial market meltdown. Nevertheless, West Tisbury, about to go to the markets for a $4 million credit, and other economically sturdy small towns are increasingly regarded as at least semi-precious opportunities for lenders, treasurer Kathy Logue told selectmen last week.
And after the town's credit rating was upgraded last week to AA from AA- by Standard and Poor's (S&P), the national financial rating agency for municipalities, Ms. Logue hopes this week that the town will find investors willing to buy the town's short-term bonds at favorable interest rates on October 30.
S&P's rating system for investment grade bonds ranges from AAA to D in 10 rating categories. West Tisbury now has S&P's third highest rating for long-term debt. The town holds a 1+ short-term note rating, S&P's highest .
"The credit markets are beginning to see that small, isolated towns like ours are attractive because we have revenues based on a broad residential tax base, compared with larger communities with dependence on state aid or on one large company or employer," Ms. Logue told The Martha's Vineyard Times.
The S&P upgrade was based on "the town's strong real estate wealth and income, sound financial operations with no dependence on state aid, and manageable debt position with rapid amortization of existing debt."
Robin Prunty, an S&P credit analyst in New York, said this week, "I can't speak for the investment community, but from a credit rating standpoint, smaller communities have had a lot of positive improvements since 2000. It's true that the public and municipal markets see that small communities can have strong economic profiles."
The attractiveness of smaller municipalities led S&P this year to issue a report asking whether "bigger is better," she said. The report, "Does Bigger Always Mean Better? Sizing Up The Impact Of Size On Municipal Ratings," concludes that smaller communities with a diverse tax base, ample reserves, and good management oversight are attractive.
In its rating report, S&P says that West Tisbury has ample reserves, conducts annual audits, has a balanced budget and only 6.7 per cent of its revenues come from the state.
Not that the short-term bond offering to underwrite the renovation of town hall hasn't had a few scary moments during the financial "perfect storm" earlier this month.
"Finance is all about timing," Ms. Logue said. "We were set to offer the bonds on September 30, the day after Congress rejected the economic bailout plan and the day on which stock market began to plummet. Our financial advisor, Lynne Ludwig, recommended we pull it back. "Lynne said 'no one is going to be paying attention to bond offerings right now,'" she said, noting that costs associated with the offering could have been $30,000.
What seemed like an easy assumption in April changed rapidly in less than a month. "The usual buyers were not sitting down to review offerings on September 30," Ms. Logue said, noting that the market would likely have been receptive in July but that the town did not want to borrow and pay interest "for nothing, since the work was not scheduled to begin for almost three months."
The bond offering is part of a $5.1-million town hall renovation project approved by voters in April at annual town meeting. Groundbreaking for the renovation took place last Wednesday. J.K. Scanlan Company, Inc., based in East Falmouth, is the general contractor for the project.
Based on several successful small town municipal bond offerings last week, Ms. Logue sees the West Tisbury bond offer attracting bidders at interest rates between 2.5 and 3.5 percent, well below the four percent budgeted by the renovation committee. Last week, the city of Boston sold $750 million in bonds at 2.2 percent interest rate. This week, the state of California paid more than 4 percent to raise nearly $1.5 billion.
"We have options," Ms. Logue said. "We can borrow the entire amount or in several small increments as needed to keep pace with renovation expense."
The experience has motivated Ms. Logue to consider the idea of a town investment advisory committee going forward, unrelated to the work of the town finance committee. She broached the idea to selectmen last week, saying that, "We are not used to markets like this - no one is. An extra pair of eyes from a retired banker or money manager might be helpful."
