Groton Holds Onto Solid Bond Rating

One of the major rating houses that looks at government finance has renewed Groton’s AA bond rating and says the town’s financial outlook is stable.

The rating from Fitch on Sept. 27 means that the town can borrow money at a better interest rate than other communities with lower ratings.

“We have a stable outlook for Groton, which is good,” said Finance Director Sal Pandolfo.

But Town Manger Mark Oefinger said Groton may have to increase its reserves to maintain the credit rating or improve it in the future.

“At a ‘satisfactory’ level, the reserves are more like a credit neutral rather than a positive,” he wrote in a memo to the town council.

The Town Council’s policy is to hold at least 7.5 percent in reserve, which based on the current budget, would be about $8.9 million. This percentage is below the 10.8 median of other Connecticut communities with the same rating, and below the average of 11.4 percent.

“You try to have a reserve in case there’s any unforeseen or unexpected expenses during the year, like if the (state) or federal government should cut us after our budget is adopted,” Pandolfo said.

Frank O’Beirne, Jr., chairman of the council’s finance committee, said the town’s reserve was raised a few years ago from about 5 percent. Groton is also in the midst of a financial audit to be completed in December, so decisions about the reserve will likely wait until then, he said.

“I really have no feel for how much weight (the rating agencies) put on that percentage number, so the council will listen pretty carefully to what (the town manager) Mark says,” O’Beirne, said.

The Fitch report noted that Groton’s main revenue source was property taxes in 2010, with the balance made up for with state and federal aid. Groton ended the year with a sizeable $3.8 million deficit, which was larger that the amount budgeted, but the reserve was still satisfactory, Fitch said.

The report added that the property revaluation being done now will reflect current market values, while the last one was done at the height of the market in 2006. Preliminary estimates indicate a 10 to 15 percent decline in residential properties, Fitch said.