For Immediate Release: 10/27/2010 2:21 pm
Worcester, MA (October 27, 2010) - The City of Worcester's commitment to fiscal discipline and efforts of ongoing reforms have again been recognized by the three independent bond rating agencies. All three bond rating agencies - Moody's Investor Services, Fitch Ratings and Standard and Poor's - have maintained the City's Bond Rating at A1, AA- and A-, respectively.
These ratings are an indicator of a community's long-term stability, vibrancy and vitality. All three bond rating agencies cited the City's strong and progressive management, adherence to the Five Point Financial Plan and fiscal discipline (reserve-building efforts and reality-based budgeting) and strategic infrastructure investments in the community as key factors in their decisions.
"We are very pleased by this news, especially in light of the economic challenges that persist globally and nationally. In this brave, new world, creditworthiness is subject to even stricter standards, and these agencies were looking at our City and our actions with a fine-toothed comb," said City Manager Michael V. O'Brien.
The City team spent countless hours preparing for these reviews and two full days with these analysts. The City delivered a thorough and compelling presentation of their operational and financial management; from their continued efforts to restructure government; to the progress made to push their economic development agenda forward; and to long-term solutions for sustainability. The agencies cited the transfer of the Worcester Regional Airport, the commencement of CitySquare demolition and construction, four PILOT agreements, the implementation of new software to improve services, and the ability to negotiate zero-wage increases and increased health insurance contributions through collective bargaining as significant accomplishments.
The following are a few comments from the agencies' reports:
All in all, this is a strong and positive signal to investors who hold and purchase the City's bonds, to potential and prospective developers and business owners and to the residents of this community. Worcester is a solid, long-term investment.
However, note must be taken of concerns of the analysts: sizable pension liabilities and unsettled contracts.
"Worcester will also be challenged to address a large unfunded liability for post employment health benefits (OPEB). As of the most recent actuarial study, as of July 1, 2009, the city’s liability dropped to $765 million, down significantly from the prior $1.2 billion liability. The drop captures significant changes in Worcester's health care benefits, including adoption of "Section 18" legislation, which requires participation in Medicare by eligible retirees." (Moody’s Investments)
"In our view, these strengths are mitigated, in part, by the city’s: large projected levels of fixed pension and other post employment benefits (OPEB) costs." (Standard and Poor’s)
"WHAT COULD MAKE THE RATING GO-DOWN: 'Unfavorable settlements in collective bargaining contracts'"(Moody’s Investments)
Both of these issues, pension liabilities and collective bargaining are intertwined and the City has been, and remains, focused on the long-term. Worcester has made substantial progress addressing OPEB liability through difficult reforms, such as adoption of Section 18 and good-faith collective bargaining resulting in employees increasing their contribution to their healthcare costs. These actions have saved tens and tens of millions of taxpayer dollars since re-directed to save jobs and to preserve core municipal services. Equally important, it has reduced REAL liabilities by $435 million dollars.
A return to double digit premium increases from insurance providers for next FY (FY2012) and beyond is projected. Millions of dollars will likely need to be taken away from direct services to sustain these unsustainable increases. Reforms such as joining the State's GIC for employee healthcare and additional employee co-pay changes may very well be a necessity just to save jobs, preserve core services and continue to address these real long-term liabilities (OPEB $765 million).
"We are deeply appreciative to those municipal employees and unions that have agreed to zeros percent wage increases for FY2010 and to take on more of their health care costs, said Michael V. O'Brien. "It has allowed us to remain stable and to reaffirm our long-term footing. Our current budget for FY2011 was not able to build-in wage increases without layoffs. It is clear that our shared goal to weather this economic storm will require this same cooperative approach."
"I am grateful to the work of our team: Assistant City Manager Julie Jacobson, Chief Financial Officer Thomas Zidelis, City Auditor James DelSignore, City Treasurer and Collector Mariann Hier Castelli, and Budget Director Jarrett Conner, and Lisa Dickinson and Kim Pare, of Unibank Fiscal Advisors, Inc. for their efforts. I'd like to thank the members of my Cabinet for rising to the challenge and pushing for progress in spite of adversity, and I am most grateful to the Worcester City Council for your support and stewardship."
bond-rating-presentation-2010.pdf
