The city of Hoboken’s credit rating, which is based on the city’s potential ability to repay loans and determines its borrowing strength, rose considerably at the end of 2013 after a presentation by the city to the agency Standard & Poor’s. The city’s new rating, AA+, stands in stark contrast to its previously low rating of BAA3 that Moody’s issued five years ago.
AA+ is the second highest rating that Standard & Poor’s (S&P) offers, while BAA3 is the lowest possible rating Moody’s offers without falling into the “non-investment grade speculative” category. City officials have referred to the city’s prior rating as “near-junk status” and even likened it to no credit rating at all, but Mayor Dawn Zimmer said last week that the new rating allows the city new financial independence.
“In four years, we went from a city under state fiscal monitoring with near junk bond status to a thriving, financially strong urban center that is the envy of our state,” said Zimmer in a statement following the presentation to S&P. “I’m proud that since becoming mayor, we righted our fiscal ship so we can now stand on our own two feet and finance our infrastructure needs so our great city can continue to improve.”
“We can now stand on our own two feet and finance our infrastructure needs.” – Dawn Zimmer
According to Zimmer, who discussed the new rating in an interview last week, the city struggled considerably throughout her first term to fund infrastructure and capital improvement projects due to an inability to take out long-term loans and buy long-term bonds. As a result, nearly all of the bonds which the city purchased to recover from Hurricane Sandy, in the region of $100 million, were issued as short term notes with higher interest rates.
The new credit rating, Zimmer said, will allow the city much more flexibility going forward.
“During my first term we really couldn’t take advantage of what have been historically low interest rates which were available to borrowers with much higher ratings,” she said. “Now we’re going to be able to buy bonds with those interest rates, which not only reduces the immediate impact on our taxpayers, but allows us to maintain financial strength while still moving forward with projects.”
Zimmer pointed to the scheduled Washington Street redesign project, currently in a planning phase, as an upcoming improvement which could be covered by bonding rather than raising taxes on current residents to foot the bill.
“I think these long term bonds are good financial tool for us in terms of maintaining fairness and cost-effectiveness,” she said. “With a project like Washington Street, which could last 10 or 20 years, isn’t it fair that 10 to 20 years worth of taxpayers pay their share, rather than only the residents here now?”
Additionally, the city now has the potential to refinance its existing debts. On Thursday, Zimmer announced a refinancing of debts owed by the Hoboken Parking Utility, saving the city just under $1.5 million over the next 10 years. The mayor said that the success of that first refinancing could mean a shift in strategy for the administration, as she plans to explore which other debts could be reassessed in an effort to save money.
How was it done?
According to Zimmer, the low credit rating offered to the city in 2008 was not due to any single factor, but rather what she said was short-sighted management dating back decades. She said it was exacerbated by the overwhelming debt that the city took on when former Mayor David Roberts purchased Hoboken University Medical Center in an effort to keep it from closing. Praised at the time as a brave and gutsy strategy, the city was nonetheless faced with almost $90 million in debt soon after.
Later, a state fiscal monitor seized control of the city’s finances and ordered Zimmer’s incoming administration to make serious changes to the city’s management structure in a way that would cut costs, stabilize taxes, and allow the city to maintain a surplus while passing consecutive budgets without any major fluctuations. Zimmer said last week that she believes, as does S&P’s, that those goals have been met.
Zimmer pointed to the changing of several City Hall management structures, as well as renewed contracts with the city’s unions and its Police and Fire Departments.
She also thanked 6th Ward Councilman Peter Cunningham, who works in finance, for the role he played as council president last year in working on the city’s presentation to S&P.
“Mayor Zimmer and I have prioritized the issue of fiscal responsibility since 2007,” said Cunningham. “It is and will continue to be a priority as it is fundamental to everything we do from infrastructure improvements to future development to ensuring Hoboken is financially protected from the unexpected.”
Dean DeChiaro may be reached at email@example.com