Debt Ratings Downgraded In Ansonia And Derby, But Not In Seymour

Debt ratings in Ansonia and Derby were downgraded this month, according to information published by S&P Global Ratings.

Seymour, though, was a bright spot, maintaining its ​‘AA+’ rating.

“The rating reflects their opinion that Seymour has a very strong economy, has strong management, strong budgetary performance, strong budget flexibility, very strong liquidity, a very strong debt-contingent liability position and a strong institutional framework,” Seymour First Selectman Kurt Miller said in a statement posted on social media.

The general obligation debt ratings are a reflection of a city’s fiscal health, and can help determine how much interest the public pays when the government borrows and bonds.

Ansonia, Derby and Shelton were all downgraded, in part, for depleting reserve funds. Ratings agencies like to see healthy reserves.

Although Shelton had its debt rating downgraded to A1 from Aa3, Moody’s Investor Services noted the city has a ​“robust, growing tax base, affluent population and low debt burden.”

Miller’s statement is embedded below. If your browser doesn’t load the statement, click here to read it.

ANSONIA

Ansonia was downgraded from AA to AA-.

It is still considered a ​“high” rating category.

The city was downgraded because city government has been depleting reserve funds, according to a report summary from S&P.

“The rating action reflects multiple years of reserve drawdowns, resulting in a decline in the city’s available fund balance position from 25 percent to 11 percent over four years,” according to a statement in the summary attributed to S&P Global Ratings credit analyst Christian Richards.

Since being elected in November 2013, Mayor David Cassetti’s administration has been using the city’s reserve fund, called the fund balance, to lower or to maintain the city’s tax rate.

At the same time, Main Street has undergone a resurgence since 2009, with the addition of several restaurants.

The city has also attracted manufacturing, once the lower Valley’s lifeblood.

But it was not enough to prevent a downgrade.

The city’s tax base just hasn’t grown enough to offset Ansonia’s ​“reduction in flexibility,” according to S & P Global Ratings.

The report summary also calls Ansonia government’s long-term planning into question.

“Additionally, we do not believe management is undertaking significant forward-looking financial planning beyond the next budget year, leading to a revision in our view of the financial management environment,” the report states.

However, the outlook for the next two years for Ansonia is stable, according to the report, ​“supported by generally balanced recurring revenues and expenditures and our expectation that management will continue to look for ways to contain expenditure growth.”

In a prepared statement in response to a Valley Indy inquiry, Mayor David Cassetti’s office noted AA- is still a solid credit rating.

“The fund balance was purposely reduced in order to put taxpayer funds back in the hands of taxpayers and not just to stockpile the funds Funds were used to pay for one-time expenses, badly needed infrastructure upgrades and to bolster city services. Some unexpected expenses further reduced the fund balance,” according to the statement.

The Cassetti administration also said the downgrade did not impact the cost of borrowing, noting the city just received a historic low of 2.11 percent interest on a recent sale of 20-year bonds.

“With respect to S&P’s analysis, it is important to note that the priorities of the community are not always identical to the priorities of the rating agency. Would residents prefer a relatively higher fund balance in exchange for higher taxes, or lower spending on education? Ansonia’s financial strategy was tailored to meet the needs of our community first and foremost. This has allowed Ansonia to stabilize taxes, increase funding for city services, and still maintain a very solid bond rating,” the statement read.

Read the complete response from the Cassetti administration here.

The mayor, a Republican, is up for re-election in November, and the Democrats recently endorsed former Republican Phil Tripp, an Alderman who used to be aligned with Cassetti, to run for mayor.

The Cassetti administration’s use of fund balance and city spending in general has been a rallying cry for Ansonia Democrats in the past two elections.

“This report confirms the suspicions that most of the residents of Ansonia have regarding Cassetti’s ability to manage the city’s finances,” Tarek Raslan, the chairman of the Ansonia Democratic Town Committee, said. ​“Phil Tripp has consistently fought for residents on this issue, and voted against the last two budgets. Most concerning is that this report cites that there has not been sufficient growth in the tax base. Lots of borrowing, lots of spending, and Cassetti’s team can’t see past the next 12 months. It’s time for a change, it’s time for honest budgets, time for real economic growth, Phil Tripp is ready to lead.”

Some of what the S&P Global Ratings brought up was previously discussed at public budget meetings in Ansonia with Kurt Miller, the Seymour First Selectman who was hired as a budget consultant by the City of Ansonia earlier this year.

DERBY

Derby’s debt rating was lowered to A+ from AA- based on ​“weak budgetary performance,” according to S&P Global Ratings. A+ is considered an ​“upper medium” investment grade. Before the downgrade Derby was in the ​“high” investment grade.

The downgrade was directly related to mistakes city government made while creating annual budgets, and the lack of ​“certain” internal controls, according to S&P.

City officials expected the downgrade, and said so frequently during the city’s recent budget crisis in the spring, when the mistakes were first made public.

“The rating action reflects our view of the city’s reduction and restatement of fiscal 2017’s available fund balance from $1.2 million to a negative $1.4 million and subsequent weak budgetary performance in fiscal 2019,” according to S&P Global Ratings credit analyst Anthony Polanco.

The report states the fund balance depletion was because of several factors, including ​“over-budgeting of revenues, lack of certain internal controls, and understatement of prior-year expenditures that were not previously fully realized and accounted for.”

At the end of the most recent budget cycle, Derby officials revealed they had double counted state grant money as revenue, leaving a budget hole on the revenue side.

The city launched an ​“eight point recovery plan” to replenish its fund balance and get the city back on its feet. The Derby Board of Apportionment and Taxation also voted to raise taxes, and did not give more money to the Board of Education.

The city’s recovery plan includes selling assets, refinancing debt, the consideration of mill-rate increases, and tax sales. Click the link and then scroll down to read more.

The report recognizes the city government’s recovery plan, which caused S&P Global Ratings to brand Derby’s debt rating ​“stable” moving forward.

“The stable outlook reflects our opinion of Derby’s plan and willingness to make the necessary revenue and expenditure adjustments, albeit through several one-time measures, to restore available reserves to positive levels,” the report summary states.

In a statement Wednesday, Mayor Rich Dziekan’s office notes Derby government has been working with S&P.

“While we are not happy that the city was downgraded, we understand the reason S&P made the decision they did. The administration has had multiple interactions with the rating agency via conference calls over the past two months,” the statement read.

“S&P has confidence in our 8‑point recovery plan to bring the Derby back to fiscal health, and we firmly believe that without those interactions and the thoughtful detailed presentation of the recovery plan, the downgrade would have been much worse than the one notch.”

Click here to read the full statement from Derby City Hall.

City Treasurer Keith McLiverty is scheduled to update the Board of Aldermen/Alderwomen on the city’s finances at a meeting Sept. 12, according to the mayor’s statement.

Like Ansonia, Derby officials noted the city recently refinanced debt and received its lowest interest rate in 40 years.

Dziekan, a Republican running for re-election, also noted that the city’s credit rating is still respectable. In fact, it’s the same rating as neighboring Shelton, he said.

Aniello ​“Owney” Malerba III, chairman of the Derby Democratic Town Committee, said the downgrade shows city government’s lack of oversight.

“It is quite clear from the Standard & Poors Global Rating that the downgrade in Derby’s bond rating is due to the failure of this administration to exercise strong oversight of our city’s finances,” Malerba said in an email.

Malerba, whose party has endorsed firefighter Brian Coppolo to challenge Dziekan, said Derby needs to elect new leaders.

“The current fiscal officers failed the taxpayers of Derby and the taxpayers must now pay for those failures. They deserve better,” Malerba said.

Coppolo agreed — and promised to bring in better qualified finance professionals if elected mayor.

“The reality is we have to clean house. The reality is that we need competent leadership and competent staff within City Hall so that we can stabilize and improve our bond rating,” Coppolo said. ​“The city is a multi million dollar corporation and we need to have a serious approach to protecting the interests of Derby taxpayers. I will bring in highly qualified and professional people to help manage our city’s finances.”

Both Ansonia and Derby are among the most economically distressed cities in Connecticut, according to the state Department of Economic and Community Development.

The designation is based on a formula taking many things into account including poverty rates, unemployment, education and housing.

The designation qualifies both cities for additional state and federal assistance.

S&P Global Ratings mentions Derby specifically as an economically distressed community.