City to benefit from upgrade by Standard & Poor’s
The city of Forest Lake is set to benefit from the recent upgrade of its general obligation bonds rating to AA+. The new category is the second-highest used by Standard & Poor’s Ratings Services and it puts Forest Lake’s rating in the top 10 percent of the nation’s cities, counties, states and school districts.
“It is very significant,” Finance Director Ellie Paulseth told the City Council on Monday. “We are very proud of it.”
Standard & Poor’s also raised its rating of the Forest Lake Economic Development Authority’s facility lease revenue bonds from AA– to AA. Both of the new, long-term ratings were deemed to have a stable outlook.
“The stable outlook reflects our view of Forest Lake’s consistent financial performance and economy, which is supported by strong management,” Standard & Poor’s credit analyst Katilyn Pulcher said.
Standard & Poor’s detailed factors influencing the rating increases.
“The GO rating reflects Forest Lake’s strong economy, very strong budget flexibility and strong budgetary performance,” Pulcher said.
The city has more-than-adequate reserves in its general fund and capital improvement fund, and the financial condition of the water and sewer fund has been improved due in part to rate increases. The city has regularly adhered to its adopted budgets and has ended several recent fiscal years with small excesses in the general fund.
The rating service praised the city’s very strong liquidity and cash levels. Specifically, this is an endorsement of the city’s plan to maintain the road system with $700,000 in annual utility franchise fees and also of the resolution of an interfund loan from the water and sewer utility fund used to construct Fenway Athletic Park.
Standard & Poor’s credited the city with having strong management and good financial policies and practices. Examples of this include the city’s participation since 2005 in two budgetary awards programs and its implementation of a financial management planning tool with a 10-year outlook. Also, the city has implemented a plan for financing capital equipment without bonding and identified funding to allow depreciation of infrastructure at a 50-year level rather than a 75-year level. Finally, the city in 2009 and 2010 eliminated the post-employment health insurance benefit for all of its labor contracts.
In general, the main impact of the upgrade will be its role in obtaining lower interest rates on future bond sales.
However, it is already paying dividends. The ratings were reviewed because the city is refinancing about $3 million of general obligation water and sewer revenue bonds issued in 2005. The new, AA+ status helped attract a lower true interest rate than expected. The favorable bid will save another $10,000 per year, bringing the cost savings of the refinancing to more than $300,000 over the life of the bonds.
The upgrade came too late to affect the $21 million in lease revenue bonds issued to finance the Forest Lake City Center project, but could pay off if those bonds are ever refinanced.
City Council members on Monday spoke glowingly of the news.
“There are plenty of folks that don’t live in Forest Lake that have made comments to the effect that Forest Lake is going to the dogs,” Councilwoman Susan Young said. “Quite frankly, to have achieved a AA+ rating from Standard & Poors, an upgrade, is something that a lot of cities would appreciate being able to see. I think that sets Forest Lake apart on the positive side, instead of the other way around.”
“This is a tremendous accomplishment for the city,” Councilwoman Molly Bonnett added. “I hope our entire community is a proud as I am.”