A consultant warns the Town about spending too much on debt, saying unexpected problems can arise and the community should work hard to maintain its superior bond rating.
FOR IMMEDIATE RELEASE
CONTACT: Matt Sheley at (401) 842-6543 or msheley@middletownri.com
ADVISOR WARNS TOWN AGAINST BORROWING TOO MUCH
MIDDLETOWN, R.I. (JANUARY 18, 2021) – Just like most residents and businesses, the Town of Middletown has a limit to its borrowing capacity.
According to a recently issued independent, third-party report, the Town could be coming up that threshold if it presses forward with an estimated $109 million in school, library and open space bonds.
The 12-page report from Hilltop Securities indicated the Town could see its bond rating be lowered and other repercussions if it goes much further in the hole.
The Town Council received the Hilltop report during its meeting Tuesday night from Town Hall and no action was taken on the matter.
“It’s not that you can’t go out and bond for future projects, even if you did the $130 (million),” Hilltop advisor Matthew Blais said via a Zoom call. “You could, but it would be at the detriment of the taxpayers, I would say, because you would likely get hit by the rating agencies with a lower tax rate and therefore your borrowing costs would increase.”
Unlike some other Rhode Island municipalities, Middletown does not look at bonding as a cure for financial shortfalls.
Rather, the Town employs a “pay as we go” model whenever possible to avoid getting in the hole and compounding financial problems. The last time the Town issued new bonds was in May 2020 for $1.225 million in open space bond money for the new multipurpose fields at the former Starlight Drive-In property next door to Gaudet Middle School on Aquidneck Avenue.
According to the Hilltop report, this strategy has paid off. The first comment in the report indicated “The Town’s existing debt position is favorable with a modest debt burden and rapidly amortizing debt.” The report went onto note the Town’s excellent “Aa1” rating from Moody’s Investors Service, the premier rating service in the world.
Then, Hilltop dove into the specifics of the bonds being mulled by the Town now, although none have been formally approved to put on the Nov. 8 Election Day ballot.
The biggest of those bonds is $90 million for school improvements and upgrades, about $41 million reimbursed by the state. Later in the meeting, the council signed off on looking into a $60 million school bond, but not placing it on the Election Day ballot.
The other bonds being discussed include $12 million for a new Middletown Public Library, $6 million for continued investment in open space across the community and $1 million for work on the school maintenance building.
The Hilltop report indicated given its current totals, the Town could issue close to $136 million in new debt by the end of Fiscal 2023 (June 30, 2023) without creating financial issues.
“It’s a balance of the project needs,” Blais said. “Obviously, quite a few options were laid out for the Town as well. I think, considering the lowest option, that still achieves the Town’s plan is still prudent in that case.”
Councilwoman Terri Flynn said she had reservations about stressing the Town’s debt limit, especially in the current environment.
“I’m concerned about interest rates going up,” Flynn said. “If they go up for consumers, do they go up for municipalities?”
To check out a copy of the report, visit https://www.middletownri.com/DocumentCenter/View/3730/Hilltop-Securities-Bond-Capacity-Report-11822 online.
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