Mayor Kenneth Branner insisted last week that Middletown's financial outlook is strong, despite a third-straight year of bond rating downgrades.
"We feel good about where we are and where we're going," Branner said Thursday. "We're exactly where we thought we would be … and we're not going to do anything different going forward."
The mayor's comments came nine days after Moody's Investors Service announced it was downgrading the town's general obligation bond rating from A1 to A2.
According to Moody's, the downgrade was based – in part – on Middletown's dwindling Capital Projects Fund, a pot of reserve funding made up of revenue from new commercial and residential construction.
For years, those funds have been used to cover the town's semi-annual payments on about $42.7 million in outstanding debt, which the town incurred to finance a series of upgrades to its water, sewer and electric infrastructure.
Yet, that fund has declined from about $16 million in 2010 to roughly $4 million last year, as revenue coming in from permits and impact fees has failed to keep pace with money being spent to cover those debt payments. This year, for instance, the town is expecting to add $2.35 million to the Captial Projects Fund, while spending $3.2 million on debt payments.
"The town's practice of financing capital projects with General Fund balance has lowered available reserves to narrow levels," Moody's wrote to potential investors this month. "Management's ability to maintain structurally balanced operations, while rebuilding available reserves to a healthy level, will be critical to future ratings reviews."
Moody's issued a similar downgrade in 2011 when it dropped the town's bond rating from AA3 to A1, which was then followed by downgrade from Standard & Poor's Rating Service in 2012.
"I'm not concerned about Moody's or S&P," Branner said last week. "My biggest concern is the commitment we made to the residents that if we did grow … we wouldn't increase taxes to pay for it … and we've kept that promise."
Branner said that prior to Middletown receiving its initial ratings in 2010, he and other town officials told the rating agencies that they would rely on the Capital Projects Fund reserves – and not tax revenue – to finance their infrastructure projects.
The idea at that time, he said, was to undertake those projects during the economic downtown, when costs were lower. That, in turn, would position the town to take advantage of development opportunities when the economy began to rebound.
"We set out our game plan for future growth … and the commitment we made to residents, and [the bond rating agencies] thought it was the greatest thing since sliced bread,'" he said. "And now, because … that capital developers account has decreased, they're like, 'It's not as big as it should be.' Well, sorry … You can't have your cake and eat it too … You can't pay for capital and pay for bonds and not have that go down."
Page 2 of 2 - Branner said town council has no intention of breaking its promise to residents by raising taxes or utility rates to satisfy the bond rating agencies.
Such drastic measures won't be necessary, he said, because the town doesn't plan to take on any new debt, while increased revenue from new construction is finally beginning to refill the Capital Projects Fund.
"Those capital projects allowed us to get Johnson Controls, to get Amazon, to get Christiana Care, to get HealthSouth," he said. "The curve has turned up now. We've issued more building permits in the last seven months than we did all of last year and we're talking to more people about coming here."
Branner also scoffed at the suggestion that the town's $247,000 shortfall in operating revenue last year, or its projected $346,000 shortfall this year might indicate financial trouble ahead.
The differences in both cases are being filled by profits from the town's electric department.
"Check out other municipalities in the state of Delaware and see how many have $4 million in a savings account and have a balanced budget every year for the last 25 years," he said. "Check our utility rates against all the other municipalities in the state. We're the cheapest. That's why companies come here, and we feel very comfortable where we are going forward."