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11/17/2022 03:36 PMFor a fifth consecutive year, S&P Global Ratings has awarded the Town of North Haven with a AAA bond rating — the highest level financial designation for a municipality. The designation puts North Haven among the highest-rated municipalities in the state.
“I was pleased to hear them recognize that they scored us very high among the highest in our peer group, that represented only about 26 to 27 percent of the state," said First Selectman Michael Freda.
According to Freda, who compiled a presentation shown to S&P in October on the financial profile of North Haven in an argument for their current designation, the credit rating agency examines numerous factors that go into determining their rating per municipality, including operations, strategic and financial management, rainy day funding, new business development, and budget balancing practices. Pension funding is another key aspect of rating designation, according to Freda.
“Pension funding is very important, particularly the annual required contribution that most cities and towns have to put forward to appropriately fund the pension,” Freda said.
In his presentation, Freda pointed to the factors that have contributed to the handling of the town’s finances and its economic growth.
“I profiled where we are in terms of financial management, how we balanced budgets, and how we occasionally will deliver modest surpluses,” Freda said. “I profiled all the new business developments in town. I showed slides of all the projects, new businesses coming. We had a good grand list growth, I pointed to that.”
The town received high ratings in nearly every category according to S&P’s rating criteria, except for rainy day funding, with an expenditure rate of 8.23 percent, lower than the higher ratings of 10 to 14 percent among the town’s other highly-rated peers. Although the agency prefers municipalities to have a higher expenditure rate in fund balancing, Freda said he saw a different financial point of view in the approach of the fund.
“I always looked at that as the higher rainy day fund, that’s sort of a form of over-taxation in some respects because you’re saving sometimes too much money. But the rating agency wants us to be a little higher,” Freda said.
One of the positions of the agency in their point of view involves the ability of cities and towns to tap into savings in difficult financial periods.
“They see a lot of distressed municipalities all over the country. They see things like municipalities being crippled by cyberattacks [and] not balancing budgets. They see them on the verge of Chapter 11 [bankruptcy], where their expenses are much higher than their revenues,” said Freda.
S&P recommended that the town consider memorializing a document from Freda to the Board of Finance outlining plans to achieve a higher fund balance percentage rate, which Freda plans on seeing through over the next five years. According to Freda, the agency is not strict about reaching a 10 percdent threshold but is nonetheless looking for an increase from the current expenditure rate.
With regards to taxes, rates in North Haven under Freda’s administrations have not increased over the past years, while a drop in the mill rate has been accomplished, despite S&P’s favorability towards modest increases in town tax rates partly to reign in incremental increases in yearly revenue in the face of a lack of development.
Despite the two red flags concerning fund balancing and the mill rate, the AAA rating does still leave North Haven among the highest-rated towns in all 169 incorporated municipalities in Connecticut, while a positive financial outcome may arise even with the lower fund balancing rate.
“[The rating] becomes more important because as interest rates rise, if we have to borrow, say next year if we have to pave roads again, we’d borrow at the lowest possible rates because we’re so financially solid,” Freda said.
North Haven led among other Connecticut towns and cities in the areas of budget balancing, adherence to the agency’s prescribed financial regulations, and economic development, the latter of which Freda has been particularly, and independently, focused.
“I’ve never hired an economic development director here. For 13, 14 years, I’ve saved the town about $1.5 million in salary expenses by doing it myself,” he said. “But the outcomes are all positive because I’m so intertwined on this. So they really liked the development and all the projects that we’re bringing in.”
The town’s financial and economic activity, management statuses, and Freda’s presentation included future plans for greater economic development and investment, a strategy to help North Haven’s growth and its taxpayers.
“The more new business you can bring in, that’s more that you could offset the impact of taxes to the residents and the more that you can re-invest into the town,” said Freda, whose town profile included up to 22 new businesses that are looking to come to town.
Whilst continuing to support emergency services, education, and programs for individuals with mental health issues, infrastructure has been another key investing contributor to the AAA rating, according to Freda. Investments in the area have included paving roads, upgrades to cybersecurity at Town Hall, recreational facilities, and an emergency management center to host response during extreme weather events.
“My philosophy has also been to re-invest and show people where their tax dollars are going in the form of upgrading parks and playscapes and paving roads. We pick up trash. I don't think there's any municipality that picks up trash. They outsource it to a contractor.”
Additional upgrades in the town have been two trucks owned by Public Works, additional apparatuses for the Fire Department, and replacement of old cruisers for the Police Department, a yearly practice by the town.
Freda reflected broadly on the recent AAA rating for the future of keeping North Haven stable and growing financially and economically.
“It falls on me. I have to continue to ensure that we’re balancing budgets [and] trying to increase our rainy day fund. I still want to stay away from modest tax increases, if we can. In addition to being able to depict strong leadership and strong operational management, I’m going to have to continue to bring in new businesses to grow the top-line revenue in volume.”