Bond ratings hold steady in poor economy; All rating agencies impressed.

Byline: Nick Kotsopoulos

WORCESTER - Despite a dramatic reduction in local aid from the state, budgetary challenges and a beaten-down local housing market, the city has been able to maintain its favorable bond ratings for another year.

With the city planning to sell $38 million in general obligation bonds Tuesday, Moody's Investors Services, Standard & Poor's and Fitch Ratings conducted a thorough analysis of the city's current and prospective finances. After completing that review, and meeting with city officials, Moody's affirmed its A3 bond rating for the city, while Standard & Poor's affirmed its A- rating and Fitch maintained its higher A rating.

The favorable ratings come at a time when other communities in Massachusetts have seen their bond ratings lowered because of the impact the state fiscal meltdown has had on them.

A bond rating for a municipality is equivalent to a credit rating for a consumer. The better the bond rating, the less a community has to spend to borrow money.

City Manager Michael V. O'Brien said the fact Worcester was able to maintain its three bond ratings reflects the commitment to fiscal reforms by the city administration and City Council. He said it is even more impressive now, given that the global economic crisis has resulted in credit-tightening and an overhaul of financial regulations. As a result, he added, that has changed how bond rating agencies assess communities.

He said creditworthiness is now subject to even stricter standards. "It is important to recognize these stable ratings in the context of a global, national and regional economic crisis, the collapse of the national and regional housing markets, the dramatic reduction of our state aid to date and other negative forces at work," Mr. O'Brien wrote in a memo to the City Council Thursday.

"In this context, these ratings are great news and an affirmation of our ability to work together, stay on the course of long-term fiscal planning and adapt when and where required," he added.

A downgrade in the city's bond rating would increase the cost it incurs to borrow money and would impair its ability to carry out some of its ambitious goals. A downgrade would also be viewed negatively by developers, investors, residents and businesses.

In their reviews, the three bond rating agencies cited the city's strong financial management, ability to adapt and significant financial reforms that have been implemented during the past few years. They also pointed out the city has been able to stabilize and preserve core municipal services despite significant cutbacks in local aid, reinvest in its infrastructure and even rebuild reserves within the context of a global, national and regional economic crisis.

In its review, Moody's cited the city's commitment to implementing its five-point financial plan, intended to establish long-term financial security and enhance its reserves. Fitch Ratings said its A bond rating reflected the city's prudent financial management and ability to promptly respond to budgetary imbalances created by reductions in local aid from the state. Standard & Poor's, meanwhile, said its bond rating reflects Worcester's diversifying local economy, which continues to shift to the service sector from the manufacturing sector and benefits from a strong health care and higher education sector.