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Bond rating hits top of curve

December 05, 2013
GROSSE POINTE SHORES — The next best thing to doing a good job is getting the grade to prove it.

Grosse Pointe Shores officials are wearing the equivalent of gold stars on their foreheads now that the city’s bond rating is at the top of the curve.

“We’ve gone to a AA+,” said Mark Wollenweber, city manager.

“There’s only one other city in the Pointes that’s AA+, Grosse Pointe Farms,” added Shores Mayor Ted Kedzierski.

Ratings agency Standard & Poor’s boosted the city’s status Nov. 26 from AA to AA+.

They based the upgrade on the city’s improving financial condition and “strong” management.

“The only way you achieve this ranking is by a team effort,” Kedzierski said.

A ratings boost means the city is considered a safer investment.

“The higher the rating, the lower the interest rate you need to pay because people are more comfortable with the creditworthiness of the tax entity that’s guaranteeing the payment on the bond,” said Kedzierski, a CPA and attorney.

Standard & Poor’s praised Shores officials for restoring the city’s fund balance, an amount set aside as a kind of rainy day fund.

“We built over $1 million fund balance,” Kedzierski said. “That’s the cushion Standard & Poor’s was looking for.”

Shores officials asked the agency to reconsider the former rating in preparation for refinancing bonds next year.

Savings from refinancing was forecast before the upgrade to be about $18,000.

“Instead of saving $18,000, it may be degrees more than that,” Kedzierski said.

The Shores lost its AA+ rating a few years ago when fund balance declined during the 2009 consolidation of the Village of Grosse Pointe Shores, Grosse Pointe Township and Lake Township into a city form of government, namely the Village of Grosse Pointe Shores, a Michigan City.

“The only reason they downgraded us was when we became a city, (city officials) stockpiled money in the fund balance and used that in the short fiscal year,” said Wollenweber, hired after the transition. “As a result of that, (Standard & Poor’s) wanted to see a trend back to restoring it.”

A recent annual audit revealed fund balance reached 15 percent of annual operating expenses last year, up from 11 percent the year before.

Standard & Poor’s cited current fund balance at 16.5 percent of operating expenses.

“They were very pleased with that,” Wollenweber said of the rating agency.

“It validates the hard work of the finance committee, the council and our team, (Mark) Wollenweber, (Finance Director) Rhonda Ricketts, (bond counsel) Mark Gormely and city attorney (Brian Renaud),” Kedzierski said.

Specifically, S&P said in its credit profile of the Shores that the new rating reflects the city’s:

“very strong budgetary flexibility,” meaning “the city is nearly 8 mills under its Headlee limit, and thus has the flexibility to increase its property tax levy by up to $1.9 million by council vote;”

“reserves exceeding 15 percent of general fund expenditures,”

“strong budgetary performance,”

“very strong liquidity providing very strong cash levels to cover both debt service and expenditures,”

“strong management conditions” and

“adequate debt” position with “an overall debt burden that is less that 3 percent of market value.”

The city’s rating outlook contains a cautionary note:

“We do not expect to raise the rating in the next two years given the city’s location in Wayne County, which has high unemployment and significant population decline.

“Though we do not anticipate a drawdown of reserves, we could lower the rating if the city’s reserves fall below $500,000.”

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