City of Salem Maintains Historic AA Bond Rating

The financial ratings firm Standard & Poor’s this week again affirmed the City’s AA bond rating, first issued in 2013, which is the City’s highest on record.

“We consider Salem’s economy very strong…Overall, the city’s market value grew by 7.7% over the past year to $4.5 billion in 2016, leading us to revise our assessment of Salem’s economy to very strong from strong” the agency explained. “We view the city’s management as strong, with good financial policies and practices… Salem regularly monitors revenues and expenditures, and makes conservative budget assumptions based on a five-year trend. The city council and mayor engage in regular budget surveillance and receive monthly budget-to-actual and investment reports. Salem has a comprehensive five-year, annually updated capital plan that examines both facilities and infrastructure needs… The city also has a multiyear financial plan that identifies future issues, leading to revenue and expenditure decisions with a long-term perspective. Structural balance is a clear goal in the decision-making process. Salem has an investment policy, debt policy, and a reserve policy… The city maintains some unused levy capacity ($5.3 million) [and] actively works with department heads and collective bargaining units to keep cost in line with the budget.”

“Salem’s budgetary flexibility is strong, in our view,” the agency continued in their report. “In our opinion, Salem’s liquidity is very strong…It has consistently maintained very strong liquidity and we expect our assessment of liquidity to remain unchanged during our outlook period… Total governmental fund debt service is 2.7% of total governmental fund expenditures [and] overall net debt is low at 1.5% of market value, which is in our view a positive credit factor.”

“This rating affirmation is reflective of our dedication to positive economic growth, stable financial management policies, and sensible and sustainable budgeting practices,” said Salem Mayor Kim Driscoll. “Over the last several years we have made a conscience effort to get our fiscal house in order and to keep it that way. Through our on-going commitment to responsible fiscal policies and budgeting, we have been able to maintain this record-level rating and continue moving our City forward.”

Salem currently holds about $84.9 million in total direct debt, with debt service comprising only 3.2% of the City’s budget expenditures. Salem maintains a highly competitive 1.5% overall net debt-to-market value, down from 1.6% last year. Of the City’s $84.9 million of debt, $20.1 million is self-supporting debt from sewer and water enterprise funds and $2.3 million will be reimbursed by the Commonwealth for previous school building projects.

Standard & Poor’s determination comes the same week that the Government Finance Officers Association (GFOA) awarded the City its eighth Distinguished Budget Presentation Award, the only nation-wide award for public budgeting. In order to receive the award, the City had to meet nationally recognized guidelines for an effective budget presentation. The guidelines are designed to assess how well a municipality’s budget serve as a policy document, a financial plan, an operations guide, and a communications device. Salem was one of just 18 Massachusetts municipalities to receive the award.