At the Center for Priority Based Budgeting, we've been extremely interested for some time in how
credit rating agencies (CRA's) would evaluate the Priority Based
Budgeting (PBB) efforts of the communities we're working with. Our core concepts of fiscal health and priority based budgeting have proven to ensure that local governments are clear and transparent about what truly is their economic reality. Communicating that picture simply, clearly, and understandably without volumes of numbers, spreadsheets, tables, and an
endless series of charts is frankly a challenge that has plagued
managers for years. If managers are going to be able to demonstrate
financial reality internally to elected officials and staff, and
externally to CRA's and residents, they have to find better ways to make fiscal
situations understandable and transparent to everyone.
Finding
creative, clear, and nontechnical ways to demonstrate what the next five
to 10 years might look like is a must if people are going to address
fiscal concerns. All too often, local governments are unable to make
sound, timely decisions regarding investing in new resources, starting
new programs, or initiating major capital projects because elected
officials, local government managers, and staff members are paralyzed by
the uncertainty of whether they actually have enough money to
appropriate for these purposes. Developing a long-term financial
forecast is key to gaining a better understanding of what the future
might hold.
How CRA's assess municipal bond ratings for a community has a tremendous impact on the communities ability to borrow. A municipal bond is a bond
issued by a local government, or their agencies. Potential issuers of
municipal bonds include states, cities, counties, redevelopment
agencies, special-purpose districts, school districts,
public utility districts, publicly owned airports and seaports, and any
other governmental entity (or group of governments) at or below the
state level. Municipal bonds may be general obligations of the issuer or
secured by specified revenues.
Municipal bonds are securities that are issued for the purpose of
financing the infrastructure needs of the issuing municipality. These
needs vary greatly but can include schools, streets and highways,
bridges, hospitals, public housing, sewer and water systems, power
utilities, and various public projects.
Communities are seeking every possible means to prevent downgrades in their ratings (and simultaneously increase ratings). And the credit rating agencies are facing immense pressure to substantiate the ratings they report - strong or weak. We've been keeping a close eye on this as we better understand how the CRA's perceive how priority based budgeting can provide evidence that a community is taking a sustainable and responsible approach to resource allocation, basing decisions on the long-term health of the community in light of its values and priorities.
And we've seen mounting success in priority based budgeting communities that CRA's
undeniably value the long-term fiscal responsibility that PBB brings to public entities. Our first case study focused on the city of Chesapeake, Virginia. In August 2011, the three major bond rating agencies reconfirmed their prior ratings and each gave the city a "stable outlook." Per the press release, "the rating agencies confirmed the City's strong ratings, based in part on the evidence of their long-term view."
"There
is no question these are difficult times for governments at all
levels," said the city manager. "The Chesapeake City Council has said time and
again that we must keep our focus on our long term goals, while still
maintaining the best quality of life for our citizens. These ratings
provide clear evidence that we are indeed charting a sustainable course
for the City's future."
"The
three ratings are a testament to the conservative and forward-looking
fiscal management leadership of Chesapeake's City Council and staff,"
said the city manager. "Achieving a ‘stable outlook,' given the current economic
challenges facing cities locally and across the nation, speaks volumes
to the hard work our staff and elected officials have done to
strategically position Chesapeake for continued success."
Then, in 2012, Standard and Poor’s rating agency gave Douglas County, Nevada, an A+ bond rating for its “strong and imbedded financial management practices.” Douglas County has been one of the most successful implementers, and now practitioners, of priority based budgeting. In fact, they were the first county in the nation to implement priority based budgeting.
In 2012, the County embarked on the priority based budgeting process with one of the primary objectives being to bring their community into an ownership position with respect to decision making. What unfolded in their ground breaking use of an online tool to engage citizens sets the bar at a whole new level in participatory budgeting (see story here).
Per the Douglas County bond rating press release, "We have made great progress implementing solutions to long-term challenges, including strong financial management, regional partnerships, infrastructure investment and business development," said County Manager Steve Mokrohisky. "Our local economy is still in a slow recovery and we have a lot of work to do to address critical issues such as road maintenance, main street revitilization and duplication of local services, but we are moving in the right direction and there is reason to be optimistic about the future."
Additionally, Douglas County began developing 5-year financial forecasts to address long-range financial challenges, rather than short-term fixes. As a result, the County has been successful in closing the $3 million annual shortfall in its General Fund, through long term contracts with employees, elimination of positions and regional partnerships that stabilize expenses. The County has also implemented a new priority based budgeting program that focuses on continuous improvement of local services and providing the greatest value to taxpayers.
Now, Douglas County has done it again! Through a multi-year effort, the County's bond rating has just recently been upgraded an unprecedented two notches from A+ to AA. Per the press release (below and here), "the rating upgrade is a significant event for the County and reflects recent efforts to implement several fiscal health practices, including long-range financial forecasting, revenue and expense stabilization and priority based budgeting."
Congratulations to Douglas County, Nevada, for their masterful stewardship of local government resources, ability to successfully orchestrate a sound short and long-term economic plan, and thus a well-deserved, concrete AA bond rating! Bravo!
PRESS RELEASE
Douglas County’s Bond Rating Upgraded
to Highest in History
January 13, 2014. Minden, Nevada.
Standard
and Poor’s (S&P) Rating Services upgraded Douglas County’s underlying bond
rating by two notches to ‘AA’ or “very strong” on January 10, 2014. The new bond rating is the first upgrade in
10 years and is the highest underlying rating ever provided to Douglas County from
S&P. The rating upgrade is a
significant event for the County and reflects recent efforts to implement
several fiscal health practices, including long-range financial forecasting,
revenue and expense stabilization, and priority based budgeting.
“This historic upgrade is the
result of our unwavering commitment to excellence,” said County Manager Steve
Mokrohisky. “The fact that our rating
was increased by two notches is significant and demonstrates the impact of the
financial practices that we have implemented over the past several years. The leadership of our Board, the tireless
efforts of our staff and the support of our residents is reflected in this upgrade.”
A higher bond rating allows the
County to lower the cost to taxpayers for financing public projects, and is
considered a reflection of an organization’s high quality financial management,
very low credit risk and very strong capacity to meet its financial
commitments.
In its rating upgrade, S&P referenced
the County’s financial management practices that have been implemented over the
past three years, stating, “We view the county’s management conditions as very
strong with strong financial practices that are well embedded, and likely
sustainable.” S&P concluded that,
“The stable outlook reflects Standard and Poor’s opinion that county officials
will likely continue to manage general fund operations prudently, making the
budget adjustments necessary to maintain stable financial operations and very
strong available reserves. Therefore, we
do not expect to change the rating over the two-year outlook horizon.”
implemented corresponding
expenditure adjustments, permitting the county to add to reserves in fiscal
years 2012 and 2013 after consecutive deficits in fiscal years 2009-2011.”
S&P’s bond rating upgrade
comes just six months after Moody’s Investors Services, Inc. rated Douglas
County with its third highest bond rating of ‘Aa2’ in 2013. Standard and Poor’s Rating Services previously
rated Douglas County ‘A+’ or “strong” in 2012.
In 2012, S&P stated that the highlights of the County’s management
techniques were its formal financial policies, utilizing external and internal
resources for budget assumptions, and engaging in multiyear financial planning,
but noted that it wanted to see these practices continued before upgrading its
rating. The last upgrade from S&P
was in 2004, when the County’s bond rating increased one grade from ‘A’ to
‘A+’.
Related articles:
Innovations in Economic Modeling & Forecasting
Economic Data Visualization
Priority Based Budgeting Case Studies
If you're thinking of jumping into the world of Fiscal Health and Wellness through Priority Based Budgeting we would certainly like to be part of your efforts! Contact us to schedule a free webinar and identify the best CPBB service option(s) to meet your organization's particular needs.
Good Article, Thanks. Municipal Bonds | Tax Exempt Bonds & Investments | Financial & Investment Advice
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