I just watched a few minutes of the candidates forum discussion on the rainy day fund. It was interesting... though a bit troubling to hear Council members seeming to say everything is hunky dory with the rainy day fund... without ever seeing a cost/benefit analysis.
As a CPA, it makes no sense to me why such an analysis has not been produced. Regardless, it hasn't happened and clearly won't happen without a change in Council composition... despite there having been bipartisan support for the measure when I first suggested it... back in April or May.
Anyway, for those who have followed my quest for a cost/benefit analysis of the rainy day fund, I recently came across a small bit of information that I found quite interesting...
But first some history... here's an unedited excerpt from an email sent from Town Hall to the Council on December 6, 2006 regarding Moody's rating upgrade of the Town of Cheshire...
Moodys Investors Service notified me about one hour ago that they have upgraded our credit from "Aa3" to"Aa2". This is a significent development for the Town as we haven't had a credit upgrade from them in about 13 years and have been working on this upgrade for the past 5 years. It places us in a very high grade among municipalities and will result in a lower interest cost on future bond sales. There are many other positive benefits to this which I will explain later as I will provide more info over the next few days once I receive their report..
As you can see, early on... the rating upgrade was directly and primarily, though not exclusively, tied to "lower interest cost on future bond sales." Which led me to my next question...
Q. Is an 8% rainy day fund necessary for the town to issue "triple A" bonds?
A. No. You can buy "bond insurance."
And while bond insurance was, to the best of my knowledge, never mentioned as an alternative to collecting $2,000,000 in additional taxes (plus another $80,000-90,000 annually), I did ask the next obvious question...
Q. Does the Town buy "bond insurance?"
A. Yes. The town (and apparently all municipalities) buy bond insurance so that municipal bonds are virtually always rated AAA.
And this led to the next obvious questions...
Q. How much did the bond insurance cost to increase the bond rating (as compared to the town rating) from AA to AAA for last December's issuance?
A. $14,500
and
Q. Could the town have purchased bond insurance to increase last December's bond rating from A to AAA? And if so, how much would it have cost?
A. Yes. An additional $5,500 or $20,000 total.
So... to recap... (and seriously... please correct any flaws you see in my logic...)
The town increased the rainy day fund from 5% to 8%, at a cost of $2,000,000 to the taxpayers. And the alternative would have been a cost of $5,500 to the tax payers?
hmmm...
lemme think about this one...
$2,000,000 or $5,500 to get that vaunted triple A rating...
hmmm...
yeah... I guess collecting $2,000,000 in taxes makes more sense.
Tim White, CPA
Town Council, Budget Committee
p.s. There's a touch of sarcasm here. And on a different note, I'm not expecting to spend much time on the blog for the next week... but do check in to see what others are saying!