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August 04. 2013 9:19PM

Manchester mayor downplays city bond rating downgrade over tax cap

MANCHESTER — Moody's Investors Service has downgraded the city's credit ratings, partly blaming the imposition of the city's tax cap.

The city's general obligation rating was downgraded from Aa1, which is the credit rating company's second-highest grade, to Aa2; the city schools' revenue bonds went from Aa1 to Aa3.

The agency also factored in losses in the Recreation Fund, which it said includes operations from the McIntyre Ski Area, two ice arenas and the Derryfield golf course. The agency said the operations went from contributing to the city's general fund to running at deficits in fiscal year 2012.

"Current and future revenue growth (is) limited due to the city's local property tax cap, which limits the property tax levy increase to the three-year average of the consumer price index," Moody's wrote in an explanation letter that will be a topic of discussion at Tuesday's Board of Mayor and Aldermen meeting.

Mayor Ted Gatsas said the downgrade does not affect the city's current loan obligations and would have a "miniscule" effect on future interest rates. He estimated that the impact on future borrowing could be about 10 basis points, which would mean that a loan that would have been given at 6 percent would instead have an interest rate of 6.1 percent.

According to Bankrate.com's loan amortization calculator, a 10-year, $100,000 loan at 6.1 percent would mean increased costs of $602.40 over the life of a loan compared to the same amount and term at 6 percent.

"I don't even know if I'd call this a bump in the road," Gatsas said of the downgrade. "It's not going to change the way we will run the city."

Despite the credit rating downgrade, the agency upgraded the city's outlook from negative to stable, taking note of budget surpluses from increased auto registrations and lower spending on snow plowing.

"The revision of the outlook to stable reflects our view that the city's financial position will remain adequate over the near term, and incorporates our expectation that the city will manage financial operations reasonably well within the limited flexibility afforded by the property tax cap," the agency's report said. "The stable outlook also factors our view that property values will remain stagnant over the next 12 to 18 months, with limited additional declines over the near term."

Gatsas said he believes the tax cap has not hindered the city's operations.

"Even with the tax cap in place for the last three years, we've operated the city at a surplus," he said. "I think, in running the city and managing the city, we're doing fine."

tbuckland@unionleader.com


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