Portland expects lower borrowing costs after S&P upgrade
The city of Portland can look forward to lower borrowing costs in the wake of a credit rating upgrade from Standard & Poor’s.
“We’ll continue to see some savings in our future debt issuances,” Brendan T. O’Connell, the city’s finance director, told Mainebiz.
Concretely, he said, that should shave off three to five basis points from borrowing costs, which is equal to a savings of 0.03% to 0.05%. He said that could amount up to $4,000 in annual savings on a bond issue like the one floated this week.
S&P issued its latest ratings report card on Feb. 24, just before the city sold $15.7 million in bonds. Proceeds from the securities, due to mature in 2037, will be used to fund capital improvement projects, including transportation and school upgrades.
The agency raised its rating on Portland’s general obligation debt by one notch, to ‘AA+’ from ‘AA,’ citing the city’s improved budgetary performance and increase in reserves, coupled with a strong economy. That puts Portland’s credit score on par with U.S. government bonds.
The S&P report also praised the city’s management, with financial practices that are “strong, well-embedded and likely sustainable.”
“Portland is conservative in its revenue and expenditure assumptions, and it makes regular efforts to determine whether revenue or expenditures will deviate from long-term trends,” it added.
On the same day, Moody’s affirmed its ‘Aa1’ rating for Portland in relation to the $15.7 million bond sale, highlighting factors including the city’s sizable and diverse tax base, position as a regional economic center, healthy financial position and manageable pension liability.
The ratings agencies conduct a new check-up of Portland’s finances every time the city taps the bond market.
In the future, O’Connell said the city would continue to take a responsible approach to borrowing, “balancing the impact of the tax rate with an increased impact to capital maintenance.”
He also said that Portland plans to go to the capital markets more often.
“For the past few fiscal years we’ve tried to size our capital borrowings to offset older debt coming off the city books,” he said. “What we have found is that due to inflation, simply offsetting our borrowings from 10 and 20 years ago isn’t doing enough to meet our current capital needs. For 2017 we’ve increased our recommended capital borrowing by $5 million and we’ll continue to review the size of future borrowings to ensure we’re reducing the backlog of capital needs.”
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