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Using Up Funds Will Not Hurt City Score

By Sally Maison
Published: Saturday, September 26th, 2009

Huntsville plans to use over $22 million of its municipal funds in the next two years to cushion impacts of this recession. This will deplete their funds significantly, but will not affect the credit score of Madison County city, says a financial adviser.

Using Up Funds Will Not Hurt City ScoreOn January 28 this year, Mayor Tommy Battle announced that their city has achieved an AAA rating from Standard and Poor’s (S&P). Triple A is the highest rating that S&P gives to a city and Huntsville is the first town to achieve this rank in Alabama history. Moody’s Invest Services, on the other hand, gave this same city an Aa 1 rating during the same period (second best rating by a scoring company). This town is proud of its achievement and may continue to do its run in the next two years despite a continuing recession.

Town officials announced that plans to withdraw $8 million from their cash reserves this fiscal year and $14 million more in the coming year.  Officials say the funds will be used to “weather the recession.”

Outside financial adviser for Huntsville, Phil Dotts, predicts that the city will not go down in the credit score ladder. Finance analysts say that that might well be the case. Major credit rating agencies such as S&P and Moody’s have very long term views on financial management of cities. Those agencies focus more on how a town will do in the long run, and will study how well funds are before making any changes in the rating.

S&P is impressed by how well the economy of Huntsville has been doing recently. Income levels of its residents are above average, its economy has been growing solidly, and employment as well as debt levels are kept at a minimum level. It is for these reasons that the McGraw-Hill company gave the city a prime credit score.

An excellent credit rating will allow a city to borrow funds for municipal projects at lower rates, much like regular consumers. Huntsville plans to keep their rating and is proposing leaner expenditures in the next fiscal year. Mayor Battle proposes to cut off spending on government departments and outside agencies such as the town library. Wage raises for municipal workers will be postponed along with road projects and hiring of new employees. These proposals with be brought in the next fiscal hearing this September 10.

The situation of Huntsville, AL reflects the struggle of a whole country in fighting the lengthening crunch. Not only consumers, but cities as well, are on their toes just to keep their credit scores from dropping.

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