Finance Board Hopes To Keep Moody’s Happy with Concessions To Maintain Aaa Rating

Though town officials may look into making a change from the Moody’s Investor Service‘s credit rating, to one through Standard & Poor’s (S&P), they intend to start working differently with Wilton’s fund balance per the direction of its current credit analyst.

At a special Board of Finance meeting on Friday afternoon (March 22), Wilton’s bond-rating advisors shared suggestions and details about how officials should approach the town’s credit rating given new developments in town finances and the FY 2025 budget process. In particular, officials intend to stop the practice of using excess fund balance to pay down the budget — and alleviate some of the residential taxpayers’ burden — as the move is said to reflect badly on credit judgment.

With its triple-A (Aaa) rating relatively secure as it looks ahead to a new rating to be done in April or May, Wilton looks good.

“I think Wilton’s fund balance right now is at a healthy position,” said Barry Bernabe, managing director with Phoenix Advisors, LLC, and Wilton’s municipal advisor.

While Moody’s told the town it wanted to see an available fund balance ratio of 25%-35% in place, Bernabe explained that many other factors go into Moody’s assessment, including demonstrated discipline with budgets, demographics, long-term liabilities and the management team.

At the same time, he noted that a lot of municipalities in Connecticut have switched over to S&P credit ratings, from which, Bernabe explained, it may easier to get a higher rating. S&P, he said, will also put less focus on the actual amount of money in reserve and more on other factors.

“Their rating is much different,” he said. “They put a higher rating on your management team and things you have control over.

“If we were to explore going to S&P I think the odds of Wilton continuing with that Aaa are good if not better,” Bernabe said.

Board of Finance members may have felt put on the defensive during last Monday’s (March 19) public hearing on the BOS budget when former BOF chair and First Selectman Paul Hannah told them he believed a triple-A rating wasn’t absolutely necessary and, in essence, that the town’s fund balance would be better off spent than kept in such a large reserve as Moody’s was indicating.

BOF Vice Chair Stewart Koenigsberg disputed the claim, noting that in the long run, with 20-year bonds, the interest costs would increase substantially at a rate obtained with a double-A rating, versus Aaa.

“The reality (is) that it would be much, much more expensive for us to be downgraded,” he said, citing Hannah’s comments.

First Selectman Toni Boucher spoke vehemently against losing the Aaa rating, and she said it would be politically disastrous.

“I will tell you that politically … it is a terrible idea,” she said. “You will pay the price of downgrading. People will complain. They will insult you. They will make you live to regret having done that, even if you have some very good reasons to have done that.”

“I do not want to lead a town that has had the first downgrade … I am an advocate for keeping our Aaa rating no matter what anyone says,” Boucher said.

Wilton Chief Financial Officer Dawn Norton said that one thing she hoped to see done was the creation of a verifiable action plan, per Moody’s recommendation, to demonstrate that the town will be taking action toward increasing its fund balance.

Historically the town has used the fund balance to, essentially, pay down the mill rate. However, she and Bernabe explained, Moody’s sees this as a sort of willy-nilly way to manage the budget, much preferring to see excess funds used for one-time only expenditures that may not have been budgeted for at all.

“I’m recommending that we definitely move forward with a policy in place and no longer use the one-time revenues to offset our tax base,” Norton said.

“Our past practice is what they would like to see us change,” she said. “A policy in place is what they would like to see … It’s more than just where we are with our fund balance, it’s our practice.”

Past practice, she said, has been to direct everything above 10% to help bring down taxes — something Moody’s frowns upon.

Norton also pointed out that, while the town could choose to begin working with S&P going forward, it still had made promises to Moody’s that it would take certain actions to improve its operations.

“If we don’t move forward with what we gave our word on, I think that would be worse than just switching companies,” she said.

“We said we would work toward the [25%-35%] fund-balance ratios they recommended,” Norton said. While Moody’s representative agreed it could take several years to get there, they still expected a plan in place, a change in the practice of paying down the tax rate, and some kind of written policy in place that speaks to the town’s intentions in these regards.

“We did give them our word that we would stop using the one-time revenue,” Norton said.

Bernabe pointed out that though they might decide to go with S&P, Moody’s influence would still impact Wilton’s reputation.

“Moody’s could still downgrade you … It’s not like Moody’s goes away,” he said, noting that investors would still be aware of its judgments.

At least for now, however, Wilton appears to be in high standing with the financial community.

“I see Wilton’s bond rating as being very solid … I think the town is well-positioned going forward to … secure the lowest-possible borrowing costs whenever there’s a bond issue,” Bernabe said.