Moody’s Assigns 3rd Highest Rating to City of Framingham, Due to Above-Average But Manageable Debt

In full transparency, portions of this report are a press release from Moody’s Investors Service which was submitted to SOURCE through its business wire service.

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FRAMINGHAM – Moody’s Investors Service has assigned a Aa2 rating to the City of Framingham’s $13.345 million general obligation refunding bonds.

Aa2 is the third-highest long-term credit rating that Moody’s assigns to high-quality fixed-income securities with very low credit risk.

In the Moody’s scale, Aa2 is just below Aaa and Aa1, but is above everything else

Moody’s maintains the city’s Aa2 issuer rating and Aa2 rating on the city’s outstanding general obligation limited tax bonds.

The issuer rating is equivalent to the city’s hypothetical general obligation unlimited tax (GOULT) pledge; there is no debt associated with this security.

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Moody’s view the City’s outlook as stable.

City leadership met with Moody’s last week.

The Aa2 issuer rating reflects the city’s stable financial position, sizeable tax base with a large local economy, above-average but manageable debt burden and moderate unfunded pension and OPEB liabilities.

The absence of distinction between the GOLT rating and the issuer rating reflects the city’s ability to override the property tax levy cap and its pledge of its full faith and credit.

The coronavirus is not a material driver for the rating given the city’s reliance on property taxes as a primary revenue source and the continued dependability of collections.

Although, the pandemic has impacted the city’s utility enterprise fund that accounts for water and sewer operations.

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The fiscal 2020 financial report is expected to reflect a negative $2.5 million fund balance in the utility fund, equal to approximately 5% of operating revenue, due to the dramatic decline in commercial property water and sewer usage during the fourth quarter of the year.

The impact from the pandemic has also highlighted the recent draw down of utility fund reserves in prior years for capital needs that did not include corresponding rate increases to maintain reserves.

The city has since performed a review of the utility fund and developed a multiyear plan to replenish reserves as well as gradually recover from a change in overall consumption trends.

The plan includes a 12% rate increase effecting July 1, 2021 and the evaluation of alternative billing models given the diverse makeup of its rate payers that include large corporate offices to individual residential homes.

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The stable outlook reflects the healthy growth in the tax base that is expected to experience limited growth over the next two years as well as a balanced financial position given a strong management team.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING:

• Material growth in reserves and liquidity
• Significant decline in the debt burden
• Sustained trend of higher resident income levels

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FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING:

• Continued growth in the debt burden
• Decline in reserves and liquidity

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