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NORWALK, Conn. Democratic mayoral candidate Andy Garfunkel said recently that it might be okay to let Norwalk's Aaa bond rating slide in favor of fixing the city's infrastructure.
"That's the last thing in the world that Moody's wants to hear," Mayor Richard Moccia said later.
Both were taking part in the League of Women Voters of Norwalk mayoral forum, the last debate during the campaign. The question posed: "What is your position on using the rainy day fund for normal operating expenses as a way of keeping the tax rate increase lower?"
Moccia said the rainy day fund had been used to augment the pension fund but added that "you also have to be careful with that." (See the video above.)
"If you dip into the rainy day fund too much, it affects your Triple A bond rating," he said. "It affects how the rating agencies look at you, and when you go on the market for municipal bonds, it affects your credit rating."
"There may be times that we do need to dip into this rainy day fund to help our capital budget, to help move along the infrastructure problems that we're having," Garfunkel replied. Garfunkel explained that, if the roads deteriorate too much, fixing them will be much more expensive and "we're going to be jeopardizing our Triple A bond rating because we don't have the stability of the city." He concluded by saying that the "rainy day fund should be looked at closely. Possibly we need to use this, and it doesn't hurt us once in a while to possibly have a double A rating just for a period of time to build ourselves back up to have the stability of the city."
Moccia countered that the rainy day fund could not be used for capital expenses and that the difference between Double A and Triple A could be "25 basis points" and that the city has appropriated $14 million from the capital budget for infrastructure repair over the past three years.
Bob Barron, director of management and budgets for Norwalk, said the politicians were referring to the general fund surplus, which city guidelines specify (on page 11) should be equal to at least 5 percent of the operating budget. If the reserve fund exceeds 10 percent of the budget, money can be appropriated for general use. Guidelines call for keeping the balance at the median of other Aaa-rated municipalities in the State of Connecticut, which is listed as being 7.8 percent. The guidelines say that the fund may be used for tax relief purposes under specific conditions.
Moody's recently put Norwalk on a watch list in response to problems the federal government was having with the debt ceiling. David Jacobsen, a Moody's representative, said that Norwalk is currently rated Aaa with a negative outlook, "which I am quite sure is related to the indirect links to sovereign government." Negative outlook means there is a risk of downgrade over next year or two. "You guys have put out quite a few general obligation bonds and they were all assigned triple A ratings," Jacobsen commented. He could find nothing in the file that mentioned Norwalk's infrastructure.
Barron said that Moody's and other financial rating services are having an internal debate about how to issue ratings. He said infrastructure could be a consideration. "In general, certainly the condition of the city in its entirety, in addition to its infrastructure, is going to be a consideration because if an infrastructure is challenged and it's going to require a great deal of resources in the future, that has an impact on the financial viability of the city," he said.
Garfunkel said this week that he doesn't believe it's a good idea to let the bond rating slip to double A rating, but, given the choice of allowing the infrastructure to crumble or taking a temporary downgrade, he'd accept the double A.
"If we lose our handle on the infrastructure, if we let things deteriorate too far, we put ourselves in a position that we won't be able to get our Triple A bond rating because we're not spending the money in the right place at the right time and keeping up our infrastructure," he said.
"It's a very complex subject," Barron said. "I can say that for cities that issue debt infrequently, every five years or maybe every decade, when they need to build a school, a dip in the credit rating for a short period of time would have less of an impact than a city like Norwalk, who is a serial issuer."
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