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Somerville Gets Report Card from Credit-Rating Agency

How did Moody's, a rating agency, grade Somerville?

Moody's Investors Service gave Somerville an Aa2 credit rating on long-term debt, according to a report issued May 30.

It's the same credit rating Somerville received from Moody's in 2011 and 2012.

Moody's rates long-term debt obligations on a scale from Aaa (highest) to C (lowest). According to the rating agency, "Obligations rated Aa are judged to be of high quality and are subject to very low credit risk."

As recently as 2010, Somerville had a Moody's rating of Aa3. The 3 indicates a ranking at the lower end of the Aa rating. A rank of Aa1 would be at the high end of the Aa rating.

In the same report, Moody's issued Somerville a MIG 1 rating on short-term debt obligations. MIG stands for "municipal investment grade," and MIG 1 is the highest ranking. According to Moody's, "This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing."

According to an announcement from the city of Somerville and the Moody's report, the MIG 1 rating means Somerville will have low borrowing costs on nearly $22 million in bonds approved for the Union Square Revitalization Plan, a ladder truck for the fire department and school and municipal building renovations.

The Moody's report said Somerville has about $80.8 million in outstanding general obligation debt and had a fiscal-year 2012 general fund balance of about $41.6 million.

The report listed conservative budgetary practices, strong reserve levels, a sizable tax base and ongoing redevelopment efforts as reasons for the high ratings.

It listed Assembly Square as a redevelopment area that is expected to expand the city's tax base.

It said Somerville had some challenges, including the size of its overall debt burden, sizable long-term pension and benefits liabilities and below-average socioeconomic numbers—in other words, Somerville residents don't earn as much money as others in Massachusetts, in part because the city has so many students.

It said Somerville's rating might go up with an improved general fund balance, an expansion of the tax base and "improvement in the demographic profile of the city"—meaning a population that earns more money.

A failure to address long-term pension and benefits obligations and an increased debt burden could make Somerville's rating go down, Moody's says.

In a statement about the recent rating, Somerville Mayor Joseph Curtatone said, "We are stabilizing our financial position not through short-term gimmicks or budget cuts, but through smart, targeted investments that continue to unlock economic opportunities across the city and broaden our tax base without taking on too much debt at once."

In 2011, Standard & Poor's, another rating agency, raised Somerville's credit rating from A+ to AA-.

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