UNION – Township officials were beaming over the excellent financial rating they received recently, which allowed Union to payback general obligation bonds at a much lower interest rate.
Standard and Poor’s Rating Services gave the township an AA+ rating, noting they had a “stable” financial outlook based on “strong budgetary flexibility.”
Also cited as strong reasons for this rating was the township had reserves, or savings, totaling $8.2 million, or approximately 9.2 percent of current fund expenditures; the ability to cover debt service and expenditures; strong management conditions with good financial management policies and practices; and debt with low carrying charges.
Township officials were more than overjoyed to achieve the higher rating, they said, because this allows the township to buy bonds at a lower cost, which saves taxpayer’s dollars.
“I’m proud of the way our department heads work together to provide maximum services to residents while managing resources under tight budget constraints. This is in large part why the township has received an affirmation of our AA+ rating,” said Township Business Administrator Ron Manzella.
He explained that in a town the size of Union, a municipality does not bond immediately but rather takes bond anticipation notes for three years that allow the interest to be paid, not the principle.
“That would be like paying the interest on a home mortgage, but not the principle,” he said, explaining that after three years a municipality goes out for more long-term financing through bonds.
That process, he said, is where a town’s bond rating becomes important. A municipality with a higher bond rating is more attractive to buyers who know that the town can pay back the bonds. A town with a lower bond rating does not have the financial flexibility and management, which makes it a risk for those investing in the bonds.
“When you go out into the marketplace to see your notes, brokers buy up these notes. The better your bond rating, the more investment firms feel confident that they are working with a safe town who is on sound financial footing,” Manzella said.
“For example, a town with a lower bond rating would have had to pay 4 percent interest on the bonds they sold, not 2.1 percent as we did,” he added.
The notes the township recently sold, Manzella explained, which amounted to close to $900,000, were not for anything the township is planning to do, but rather projects they took on three years ago.
Township Assistant Business Administrator Tammie Kopin also was elated to see the latest bond rating.
“Our finance committee, which consists of certain employees, department heads and the deputy mayor, meets regularly to set policies and procedures and review financial information. The fact that Standard and Poor stated in their report that they view Union’s management conditions as strong with ‘good financial management practices’ reaffirms the value of the practices that we employ,” said the assistant business administrator.
Mayor Clifton People viewed the latest financial news as not only a plus for the township but also for current and future residents.
“People want to come to Union and this report which reaffirms our AA+ rating shows one of the reasons for that – Union’s economy is very strong according to Standard and Poor’s criteria. Not every community can say that these days,” the mayor said.
Standard and Poor elaborated on the rating they gave the township, pointing out they considered the township’s economy very strong despite losing Merck, one of the leading taxpayers, because the tax loss was gradual.
“We believe Union’s good management practices and favorable debt profile provide further rating stability,” Standard and Poor noted in their report, but did not expect to change the rating in the next two years. They did, however, mention if the township failed to sustain this type of strong performance in all areas, the rate would be lowered.
The township’s higher bond performance rating got a test run this month when Union held a bond sale. Manzella said not only did they have seven bidders, with the winning bid to purchase performance bonds coming in at 2.138153 percent, but there were bidders from as far away as Wisconsin and Ohio.
“It was a really good sale,” said the township business administrator, adding that this latest bond sale showed Union “is a very good risk.”