Auburn’s Finances in Plain English

by | Sep 2, 2015

By John Anderson

After the selectmen signed the paperwork to borrow over $17 million on August 21st, I asked Auburn CFO Ed Kazanovicz to give me an explanation about the town’s great bond ratings in plain English so we all could understand better. This is what Mr. Kazanovicz emailed me:

“On August 11, 2015 the Town of Auburn bond rating was upgraded to Aa2 from Aa3 as a result of issuing 12 million dollars in long term bonds and the issuance of 5.1 million in short term Bond Anticipation Notes. A bond rating review and credit rating is required every time a municipality issues governmental bonds. The bond rating represents the credit worthiness of the town which is analyzed by potential investors to assess the likelihood that the debt will be repaid.

In Auburn’s case, a rating of Aa2 from Moody’s Investors Service and an AA+ from Standard and Poor’s implies VERY STRONG creditworthiness. Rating Agencies take into consideration all of the economic well-being characteristics of the town such as median income, unemployment rate, diversity of tax base, population growth, trend in tax revenues and tax rates. Another key element of the rating analyzes the Town’s financial stability. Factors used in determining Auburn’s financial position is level of Fund Balance and Reserves, Operating Flexibility, Debt Ratio, Management and Fiscal Policies, Liquidity and how the town is addressing its Pension and Other Post-Employment Benefits (OPEB) obligations.

Auburn’s bond rating is comparable to that of one’s personal credit score rating. The higher the rating, the lower the interest rate one bears for borrowing money. Bottom line, this translates to long-term interest savings on the money that the town borrows to meet its annual and long term capital needs.

Due to the rating upgrade, the town has conservatively estimated that a reduction in interest rate of 10 basis points (1/10 of 1%) translates to a $21,000 savings in interest cost for every one million dollars borrowed. In terms of the General Obligation bonds just issued in the amount of $12,000,000 the total savings over the life of the bonds is about $252,000. The town can expect to realize savings on future bonds that are issued provided it maintains its current credit rating. A copy of both rating reviews can be found under the Department of Finance/Accounting Division on Auburn’s website”

As a citizen and taxpayer, I am grateful that Auburn’s Financial Management Team has worked diligently to put our town in such a great financial position. I’m confident that many of you feel the same.