By David R. Smith

Standard & Poor’s has raised Somerville’s bond rating from the city’s previous high of “AA-” to its new high of “AA+,” which represents a two-ratings jump. The new rating is just one step away from S&P’s highest designation of “AAA.” Higher bond ratings typically result in lower interest rates for municipalities when it comes to borrowing and financing for projects.

In its report, the bond-rating agency cited the city’s strong financial practices and budget management, low overall debt, strong capacity to meet its financial commitments -including aggressively paying off debt- and a robust, growing economy.

“Standard & Poor’s upgrade of our bond rating affirms that our approach is the right approach, balancing conservative budgeting with ongoing strategic investment in our community and a long-term development vision laid out in SomerVision,” Mayor Joseph A. Curtatone said, referring to the city’s 20-year comprehensive plan designed to codify the community’s goals on issues such as housing and development.

The report was issued March 13 and specifically cites the city’s strong management conditions and prudent budget performance, with the city realizing a surplus equal to 1.9 percent of spending across all funds in fiscal 2013. A decade ago, the city’s fund equity, a strong indicator of a community’s fiscal health, stood at $11.5 million. While other communities suffered losses in fund equity over the past decade due to the economy, the city’s fund equity today is $47 million, with fiscal ‘13’s increase of $5.4 million the highest one-year increase in the city’s history.

Standard & Poor’s noted the city’s budget flexibility achieved by conservative budgeting and saving practices, which in fiscal ‘13 yielded reserves at 17 percent of city spending. S&P also looked favorably upon the city’s debt levels, citing total government available cash at 30 percent of total expenditures and roughly seven times the city’s debt service.

“Moreover, based on past debt issuance, we believe the city has strong access to capital markets to provide for liquidity needs,” the report stated, noting the city’s overall debt service amounts to 4 percent of spending. “Further bolstering our view of the city’s debt profile is that overall net debt is a low 1.2 percent of market value.”

The city’s rate of development has resulted in increasing revenues. Last year, the city realized $3.5 million in new growth -$1 million more than the previous year- including new growth from new commercial and residential construction at Assembly Row, along with the completion of Maxwell’s Green, new construction of the public storage facility on Middlesex Avenue, renovation of the Stop & Shop on Route 16 and new personal property growth on Inner Belt Road. Development in Somerville is guided by SomerVision, the city’s 20-year comprehensive plan developed over two years by the community to codify the community’s values and apply them to each and every development in the city.

“As the city continues investing in projects that improve our community, our higher bond ratings will ensure that it costs taxpayers less,” City Finance Director Edward Bean said. “We are maximizing every tax dollar through our conservative budgeting approach, continuing to offer more services than most cities and strategically investing in projects that improve our quality of life, while our per capita spending remains lower than most cities and towns in the state. Standard & Poor’s upgrade of our bond rating is a testament to the city’s strategy.”