Credit agency paints brighter picture of Bainbridge finances

BAINBRIDGE ISLAND - Bainbridge Island's financial outlook improved over the past three years, and credit rating agencies are taking notice.

Moody's Investors Service assigned a relatively strong Aa3 rating to $5.3 million in unlimited tax general obligation refunding bonds the city expects to issue this week. Moody's also affirmed an A1 rating for the city's outstanding $18.1 million of limited tax general obligation bonds, as well as an Aa3 rating for the outstanding $5.6 million in unlimited tax bonds.

The ratings are based on the city's "continuing trend of improvement in its financial operations," according to the Aug. 7 Moody's report. Other strengths noted in the report include the city's moderately-sized tax base, replenished reserves and low direct debt burden. Moody's credited the city's "strong management team and conservative financial policies."

The city still faces financial challenges, according to the report. Taxable assessed values on the island have yet to rebound from the economic recession. There also is a potential for new debt as the city catches up on delayed construction projects.

The positive observations in the report mark a dramatic reversal from three years ago when Moody's downgraded the city's credit rating. Moody's dropped the city's limited tax general obligation bond rating from Aa3 to A1 in 2010 and lowered the rating for its unlimited tax general obligation bonds from Aa2 to Aa3.

The 2010 report cited depleted savings as a key reason for the downgrade. Moody's also pointed to the city's "aggressive" capital spending, coupled with a decline in tax revenue and fees from new construction.

A year later, Moody's removed the "negative outlook" from Bainbridge Island's credit report, giving a nod to the city's improved financial management and increased reserves. Those trends were referenced again in the report last week, though the city's bond ratings haven't been upgraded since the 2010 downgrade.

Finance Director Ellen Schroer gave the City Council an encouraging midyear report last week. Schroer said a strong finish to 2012 and higher-than-predicted revenue in the first half of 2013 have put the city ahead of its approved biennial budget. The city should be able to fully fund its reserves over the next two years and exceed the $3 million target for its general fund stability reserve by about $290,000 at the end of 2014.

"The city is in a stable financial position," Schroer concluded. "We're happy to have a budget that fully funds the reserves that have been set by council."

Councilman Bob Scales said he was thrilled by the turnaround.

"I think this is fantastic news," Scales said last week. "It took us three years to get there, but we've now reached the targets for reserves we set in 2010."

Now the city needs to avoid the avoid the pitfalls of the past and resist the temptation to dip into the new savings, he said.

"I hope we can have some discipline in the budgetary process and be grateful for the reserves," Scales said.