FINANCIAL MANAGEMENT/Improving a credit rating
In the early 1990s, White Bear Lake, Minn., began a concerted effort to lower its borrowing costs by improving the A credit rating that it had carried since 1974. By reducing its reliance on debt issuance and implementing plans for economic development, the city recently received an upgrade from A2 to Aa3 from Moody’s Investors Service, New York.
Situated in the northeast corner of the Minneapolis/Saint Paul metropolitan area, White Bear Lake is home to 26,000 residents. When the city undertook the effort to upgrade its credit rating, it had two main goals:
* to alleviate above-average debt burden caused by frequent issuance by the city and other overlapping governmental units; and
* to identify future development opportunities. (The city is nearly fully developed. Ten years ago, future development opportunities and potential for expansion of the city’s tax base were limited.)
To lessen its reliance on debt issuance, White Bear Lake created two funds using surplus money remaining in debt service and construction accounts once bondissues were retired. The city’s new funds included:* a Community Rein vestment Fund for financing street and park improvements; and
* a Non-Bonded Fund to provide interim funding for special assessment projects, and to prepay special assessment bond issues once adequate assessments were collected.
Debt issuance also was decreased by using operating surpluses to finance public facilities and by funding capital equipment through the operating levy.
In addition to implementing means for reducing debt issuance, the city identified its focal point for future development and tax base expansion. Downtown White Bear Lake had been a free-standing retail destination for 80 years, and the city recognized the potential for several public and private improvements in the area. By implementing tax increment financing and new building codes, the city encouraged downtown redevelopment and housing renovation.
As a result of those measures, the city has watched property values increase an average of more than 6 percent annually, from 1994 to 1998. Five years prior to that, market value was increasing an average of 3 percent annually.
White Bear Lake has long been committed to financial management. Budgetary controls, investment policies and regular financial reports form the basis for the city’s fiscal decisions, and the community has enjoyed an essentially strong financial condition as a result.
By 1998, the city’s overall general fund balance totaled 54 percent of general fund revenues. For cash flow purposes, the city designated 60 percent of the general fund balance for operations. The remaining 40 percent of the general fund balance was undesignated, providing additional financial flexibility.
Having established substantial reserves, reduced its debt burden and implemented redevelopment initiatives, White Bear Lake was ready to demonstrate its success to the rating agency. With the help of its financial consultant, the city made a formal presentation via a conference call, and, a week later, an analyst visited the city for a tour.
On June 21, 1999, following years of plan implementation and financial strengthening, White Bear Lake attained the upgraded rating it sought. In issuing the Aa3 rating, Moody’s cited the city’s “extremely well-managed financial operations,” ample reserves, decreased debt burden and successful redevelopment initiatives.
