A Wall Street agency that rates communities on the basis of economic strength and credit stability has lowered Bangor’s bond rating from an Aa2 to an Aa3 category while insisting the change is not a reflection of worsening economic factors in the city.
The change has upset Bangor Finance Director Ron Heller who termed it a “clumsy” attempt by the Wall Street firm to update its rating system on the backs of communities that rely on the firm’s financial observations to attract investors for its municipal bonds.
Despite the rating change, Heller couldn’t help but be upbeat Wednesday after returning from Boston where he sold nearly $3.4 million in 20-year municipal bonds at total interest costs of 4.1769 percent. The rate was about 0.7 percent better than the average rate being offered for Moody’s top triple-A rated bonds, he said.
The municipal bond rate was one of the best the city has ever obtained and compares to more typical costs of 5 to 6 percent. Last year, the city sold about $8.5 million in bonds at a comparable cost of 4.9977 percent, when its rating was still Aa2.
Heller attributed Wednesday’s sale to the current market for Maine bonds, which have a good reputation nationwide.
Moody’s Investors Service announced its change in a Feb. 3 report, stating it was “revising” the city’s bond rating. The report stated Bangor’s economic indicators “are more consistent nationally with the Aa3 rating level.”
The report praises the city for its “manageable debt position” and its “well-maintained financial operations.”
Only 15 percent of communities nationwide earn any type of a double-A rating from Moody’s in the first place, according to a vice president at the firm. Other communities in Maine with double-A ratings include Portland, Scarborough, Cape Elizabeth and Augusta.
Still, Bangor’s “flat” tax base and its relativaly low per capita income and family-income figures place it firmly in the Aa3 category, according to the report.
“We lowered Bangor’s rating and the city was very distraught about this. We don’t see it as a downgrade but they do, of course, because of the rating. In hindsight they should have been made an Aa3 from the beginning,” said Gary Mescher, assistant vice president of the public finance section of the credit, research and analysis department at Moody’s.
Mescher explained that the project of revamping the Moody’s rating system was in its infancy when Bangor was assigned an Aa2 rating in September 1997. One consequence of the change was to take all double-A ratings and split them into Aa1, Aa2 and Aa3 categories.
Moody’s now offers 19 possible ratings from C at the bottom to Aaa at the top.
The Moody’s system now has a much larger pool of communities to compare than it did in 1997 when the ratings revamping began, with the end result being that Bangor now has been found to be better fit in the Aa3 category, according to Mescher.
For example, he said, the city’s tax base reflects a growth rate of 1.8 percent while communities in the Aa2 category reflect a growth rate of from 3 to 6 percent. Bangor’s per capita income hovers around $13,418 while the per capita income of cities in other Aa2 ratings is around $18,000, according to Mescher.
Not comforted by the explanation, Heller maintained Wednesday that Bangor is getting a “bum rap” in the rating revision.
“That’s their way of saying, `we screwed up,’ but the city still is not being treated well in this,” said Heller.
The finance director said he tried to get Moody’s to put wording into its report that Bangor’s credit had not deteriorated because of the rating change but that officials there refused.
“They did it through the back door,” Heller said.
Before the change to Aa2 in 1997, Bangor had received an AA rating from Moody’s since 1938, according to Heller.
“We’re still very high but Aa3 is in the lower third of that category,” he said.
“For years we have been told we were a weak Double-A because of our economy. We thought we would come up Aa3 [when the change came in 1997] but we came up a Aa2 and we were astounded, amazed,” Heller said.
“The problem is they revised our rating based not on the deterioration of our economy … in fact by every measure we have improved,” Heller said.
City Manager Ed Barrett said the city’s financial condition has improved over 1997. Unemployment is low, a lot of construction projects exist, and the city has a large undesignated fund balance in its budget.
“I don’t think this will have a significant effect on the investment community,” Barrett said. “We’re just not terribly happy with the way Moody’s handled this.”