Boston Municipal Research Bureau

 

 

Boston Shows Market Strength

by · May 22, 2018

City’s AAA rating is reaffirmed

The City of Boston’s strong financial position was demonstrated by its successful sale of $150M of General Obligation (GO) bonds on May 15th. Boston showed strength in the market with the number of bids received and its pricing results. The GO bonds sold competitively at a True Interest Cost (TIC) of 2.96%, up from 2.66% in 2017 due to market movement. Measured against an index (MMD) approximating what the generic AAA-rated municipal bond return rate should be, Boston’s 2.96% was lower than the index. The City received ten bids and Bank of America Merrill Lynch was the successful bidder. For the $150M in principal issued, the City will pay $68.8M in interest costs over 20 years.

Moody’s Investors Service reaffirmed its highest bond rating of Aaa for Boston, first awarded in 2011. S&P Global affirmed its AAA rating, first awarded on March 5, 2014. The City’s Bond Counsel is Locke Lord LLP and its Financial Advisor is Hilltop Securities Inc.

Based on the FY19-FY23 capital budget, Boston is expected to issue GO bonds totaling $1.02B over the five years, but not increase debt service costs beyond its standard of 7% of operating budget. Debt service represents only 5.8% of the Mayor’s FY19 operating budget.

Proceeds of $173.3M will be available from this sale as bidders pay a premium to ensure investors receive a higher annual interest rate than the current low rates. The premium from this sale is $23.3M.
The May 2018 Moody’s and S&P Global credit reports noted the following factors about Boston, the 24th largest city in the nation:

Positive Factors Benefiting Boston:

  • Substantial and diverse tax base of $153.9B in FY18 with economic diversity bolstered by a substantial tax-exempt institutional presence and a talented workforce
  • Development efforts remain strong with taxable assessed value increasing by 67% over past five years and the pipeline is full
  • Financial operations are conservatively managed including tight control over employee headcount
  • Strong fiscal policies and practices with operating surpluses over the past 32 years
  • Manageable debt burden with a rapid bond amortization and all fixed-rate debt
  • Strong liquidity with healthy reserves available for operating flexibility

Constraining Factors Being Watched:

  • High personnel-related costs subject to collective bargaining with strong unions
  • Sizable long-term unfunded liabilities for pensions and retiree health care (OPEB)
  • Rising costs of charter schools with limited growth in state aid
  • Constraints on increasing property taxes or establishing new revenue streams

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