Town debt loads vary widely - Wallingford stands out locally for low debt, high credit rating

As published in the Record Journal Tuesday July 12, 2011

By Robert Cyr
Record-Journal staff
rcyr@record-journal.com
(203) 317-2224

When it comes to municipal finances, debt can be deceiving. It’s not always an indication of the fiscal health of a city or town, although it’s certainly a contributing factor.

Meriden is larger and less affluent than Cheshire, but Cheshire has a higher debt load. It also has a higher bond rating.

“There’s a whole series of considerations that go into how a city is rated,” said Meriden Finance Director Michael Lupkas.

Beyond debt, rating agencies look at a city or town’s demographic makeup, ability to pay, fund balance as a percentage of expenditures, and leadership, Lupkas said.

Managing debt is a matter of ongoing payments and keeping up with growth by maintaining buildings and infrastructure, according to several local municipal officials.

Meriden’s debt of $77,888,000 is the accumulation of every project that has been borrowed for over the past two decades, Lupkas said. The city is slated to pay off $11,930,000 of principal and interest in the budget year that began July 1.

The city paid down $12.4 million in debt last year, he said. Moody’s Investor Service, the credit rating agency that assesses the economic health of communities based on debt and fiscal management, gave Meriden an A1 rating, the fifth-highest mark.

“We do feel that over the past several years Meriden’s financial position has changed dramatically for the better,” Lupkas said. “We do think that an upgrade of one to two notches is fully within our reach.”

Recent large bond issues in Meriden include a $2 million project to replace police radio equipment, $975,000 to finally close out financing for the new Lincoln Middle School, which opened in 2005, and $1.8 million for the closure of a landfill, Lupkas said. Money has also been borrowed for road work, replacement of dump trucks, property purchases and park upgrades.

The city is also in the planning stages of a $216.7 million project to renovate the two high schools.

Only one area community has garnered the highest bond rating, Aaa. Wallingford was ranked highest by Moody’s recently after the sale of three bonds totaling $4.8 million.
 
Higher ratings equal more favorable interest rates when towns issue bonds.

Wallingford’s $42 million debt is shared by 44,881 residents, amounting to $935 per person, said Comptroller James Bowes. About two thirds of the debt — 67 percent, or $28.2 million — was generated by school projects.

“You have to figure the more kids you have, the more schools need expansion, and the more people you have, the more roads you need,” he said. “In terms of debt per capita, we’re pretty good — in the bottom half of communities in the state.”

Wallingford paid $3,351,000 on its debt last year and is scheduled to pay $3,340,000 from this year’s $141 million budget, he said.

Southington Finance Director Emilia Portelinha said the town paid $7,014,225 on its $73,148,000 debt last year and will pay $8,373,436 this year. The amount of debt for each of the town’s 42,534 residents is about $1,719.

Larger projects that created debt include school renovations, some more than 10 years old, totaling $18 million in work at three elementary schools. The town also recently borrowed $11 million for upgrades to its wastewater treatment plant, she said.

As with Meriden, Southington is also planning an expensive school renovation and expansion project — if approved by voters in November, the town will spend $85 million on its two middle schools.

Cheshire Finance Director Patti-Lynn Ryan said the town’s $79,818,731 debt is mostly for school projects more than a decade old, and does not include the $30 million that will need to be raised to complete a total overhaul of the wastewater treatment plant.

“We’ll probably have to start financing that shortly,” she said.

Debt for school projects, some completed almost 20 years ago, totals $14.5 million, she said. The town paid $9,996,609 against its debt last year; this year $9,824,610 is marked for that purpose. Divided by Cheshire’s 29,142 people, each person holds $2,738 of town debt, she said.