The chart above shows that Melrose’s bond rating, as assigned by Standard & Poor’s, has risen consistently over the past 13 years, going from a negative outlook in 2003 to AA+ with a positive outlook for the past four years. I am proud that despite the most difficult economic times in recent memory, we have been able to reach and maintain the highest bond rating the City of Melrose has ever had.
We use bonds to fund capital work such as road, water, and school improvements, and that high bond rating has a direct and concrete impact on the people of Melrose:
- It draws in a pool of investors to bid on the bonds;
- It increases competition among the bidders, so they will come in with their lowest interest rate; and
- The lower interest rates free up more money for other projects and funds the existing project at the lowest possible cost.
Who doesn’t hate paying interest? A strong bond rating allows us to borrow money at favorable rates. That’s the bottom line.
It wouldn’t be possible to pay for big projects such as road and school improvements from our yearly operating budget. Bonding allows us to get the money up front and pay it off over 10-20 years—similar to a mortgage or a home equity loan, but with bigger numbers. Where an individual has to shop around for the best deal, though, the bond market does that for us. Institutions bid on the bonds, offering lower interest rates to municipalities that have good financial management and a stable outlook—in other words, cities and towns that are a good risk.
Standard & Poor’s is the premier rating agency for cities and towns. They have a lot of municipal experience, and they do an in-depth analysis of the community’s financial picture to make a determination for the outside world. From their point of view, Melrose is doing a good job of managing its money while providing a high level of services to our residents, and that translates into our excellent bond rating.