Commonwealth Magazine article

Commonwealth Magazine article -

Report says Mass. towns have stabilized finances

Moody’s warns that problems are looming

January 07, 2013

MASSACHUSETTS CITIES AND TOWNS have managed to stabilize their finances in the wake of the Great Recession, but they are facing challenges ahead as state aid continues to fall and debt and pension obligations continue to rise, according to a new report from Moody’s Investors Service.

The report was generally positive, suggesting that the 228 cities and towns that Moody’s tracks have generally weathered the financial storm. Moody’s downgraded the financial status of a relatively high proportion of Massachusetts cities and towns at the start of the Great Recession in 2008 and 2009, but since then Bay State downgrades have been less than half the national average. In 2012, only two local entities, Saugus and the Seekonk Water District, were downgraded by Moody’s and five were upgraded.

While Moody’s said Massachusetts communities tend to be more stable financially than their counterparts around the country, the ratings service said problems loom on the horizon. The report said unemployment in Massachusetts is likely to show no dramatic improvement over the next few years but will still remain below the national average until at least 2016. The report also said cuts in federal spending on the military and health care could slow the state’s economic growth.  In 2010, according to the report, federal spending in Massachusetts was $84 billion, representing a quarter of the state’s Gross State Product.

The report said Massachusetts has a diverse employment base, led by education and health services, but the cost of doing business in the state is the second-highest in the nation.

Two other major concerns for Massachusetts cities and towns are declining state aid and rising costs for debt service and pension obligations. The report said Massachusetts municipalities received less state aid in fiscal 2012 in unadjusted dollars than in fiscal 2002. The Patrick administration has already announced plans to cut $9 million from local aid this year to deal with lower-than-expected tax revenues.  Moody’s said debt service and pension obligations accounted for a fifth of all municipal expenditures in 2011 and should gobble up a third of spending by 2020.

Moody’s financial rankings fall in three ranges: the high level is Aaa through Aaa3, the midrange is A1 through A3, and the lowest range is Baa1 through Baa3. Most of the state’s Gateway Cities fall in the midrange. The outliers are Brockton and Worcester at Aa3 and Lawrence at Baa1. Lawrence, which has its finances under state oversight, is the Massachusetts community with the lowest Moody’s ranking. Boston enjoys the highest Moody’s ranking at Aaa.

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