The city of Burlington's credit rating took a dive Wednesday. The downgrade will cost the city tens of thousands of dollars.
The city will have to pay higher interest rates on current and future loans but economists say the real danger would be allowing the city's credit rating to slip any further.
Tuesday afternoon, Moody's - a credit rating service - reduced Burlington's general debt obligation credit rating. The move will force the city to pay higher interest rates on its bond loans. Moody's analysts say the downgrade is due to uncertainty surrounding the Burlington Telecom lawsuit, a lack of liquidity, and enterprise funds that aren't breaking even.
"Moody's downgrade today recognizes what Burlingtonians have long known," said Burlington Mayor Miro Weinberger as he read from a prepared statement. "The financial management of the city by the past administration was problematic in numerous ways, particularly with respect to the $17-million cash pool loan to Burlington Telecom."
Weinberger - who put financial issues at the forefront of his election campaign - says the change will likely cost the city an extra $50,000 in loan payments during the fiscal year to come.
But, there are positive signs. The Moody's rating is based on fiscal year 2011 figures. The city has already begun addressing many of the issues highlighted as the biggest problems, as does the mayor's proposed budget, due for consideration by the city council next Monday.
"I do think the public should be assured that we have already turned the ship around," said Weinberger, "it's certainly my hope that this is the last of the downgrades."
UVM economist Art Woolf says this downgrade is not nearly as bad as another would be. "(Burlington is) kind of right above a danger zone," he said, "the next lowest notch is not suitable for investment, so, they'll still be able to borrow, but the interest rates will probably be a lot higher."
Woolf and Weinberger say even if all of the analysts' concerns are addressed, it will likely take years of good practices and strong accounting before Burlington moves back up the ratings. City officials say they foresaw a potential interest rate hike, and Wednesday's news isn't changing the mayor's budget proposal.
Fitch Ratings, the other major agency the rates Burlington's fiscal soundness, has not released a new rating yet. Woolf said he expects Fitch will make a similar assessment when they do, as the two services generally reach nearly identical conclusions.
If the mayor's budget proposal is accepted by the city council, municipal taxes won't increase. School taxes will however.
Water and waste water services are set to increase by five percent. Both enterprises funds ran seven-figure deficits this year. Weinberger says they expect the change will cost the average customer an additional $45 dollars a year. He said the rate increase is in line with inflation and other areas and will bring both funds into the black.
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