LAWRENCE — A Wall Street credit analyst is bumping the city's bond rating up a notch, to a level that is five steps above the near junk-bond rating it had after a string of multimillion-dollar budget deficits a decade ago but still six steps below the Aaa gold-standard.
The upgrade is the first by Moody's Investors Service since 2015, when the agency restored the A-level credit rating Lawrence lost 29 years earlier. The A2 level rating is an “upper-medium grade” on Moody's scale – which has 21 rankings, from Aaa to C, for municipalities in default – and tells investors that Lawrence remains a low credit risk.
That may make it easier for the city to command better interest rates when it issues $5.7 million in short-term bonds this month.
Moody's also gave the city's credit rating a “stable” outlook, meaning it does not expect it to change within the next year or two.
In an upbeat but cautious assessment that stressed Lawrence still faces formidable financial and social challenges, Moody's cited a list of indicators that the city has recovered its financial footing, including its growing tax base. Property values rose to $3.6 billion last year, up $456 million over three years and are expected to grow further over the next year or so, when a handful of tax breaks given to developers in exchange for building in the city are scheduled to expire.
Moody's also cited the sharp decline in Lawrence's unemployment rate, which dropped to 4.9 percent in December, down from 16.4 percent in 2011. Nationwide, the unemployment rate is 3.8 percent.
Moody's also pointed to the decade of budget surpluses that have left the city with at least $15 million in reserves, and credited the city with developing annual capital budgets and five-year fiscal forecasts, documents that earlier mayors didn't bother to prepare. The most recent five-year forecast projects operating budget deficits of about 1 percent over the next four years, which Moody's said it expects the city will be able to close.
Moody's analysts also expressed no concern that the city's recovery will be derailed by the Sept. 13 natural gas disaster, when over-pressurized pipelines caused explosions and fires around South Lawrence, randomly blowing up or igniting homes and causing businesses to shut for months. Ironically, Moody's suggested that the reconstruction of more than 40 miles of gas pipelines that followed the disaster may increase property values, adding to the city's tax base.
Moody's report suggests the city's rating may have been even higher except for the long-term social and economic challenges it faces, including low incomes and high levels of poverty. The median household income in Lawrence was $39,628 in 2017, about two-thirds the national average, according to the U.S. Census. One in four of the city's 80,000 residents lived in poverty in 2017, twice the national average, according to the Census.
“The city's labor market has improved although, over the long term, poverty and below-average resident wealth and incomes will remain a challenge,” Moody's concluded.
Moody's also warned that Lawrence will have to increase its borrowing to rebuild its neglected infrastructure. The biggest projects now in the works are the reconstruction of the Oliver and Leahy elementary schools, which are expected to cost $88 million. After state aid, the city share of the construction will be about $17 million.
Moody's also cautioned that Lawrence is under-funding its pension and health insurance obligations for its retired workers. The $18.1 million the city contributed to its pension fund last year was 5 percent above what was needed for the year, but still could leave the city short of its obligation to fully fund its pension obligations by 2037.
Finally, Moody's noted that Mayor Daniel Rivera said in his state of the city address last month that it may be time for the state to withdraw the fiscal overseer it sent to City Hall in 2010 and allow the city to resume its control over spending and contracts. Moody's said the overseers have stabilized the city's finances and “contributed to the city's return to fiscal stability,” but did not say in its report how it might react if state oversight ends.
In the meantime, Lawrence's improved credit rating now surpasses Methuen's, which remains at A3. The state recently named Sean Cronin, a deputy commissioner in the Department of Revenue as a fiscal stability officer – the lowest form of state oversight – in Methuen in exchange for allowing the city to borrow $4 million to cover a shortfall at its schools. Cronin also serves as fiscal overseer in Lawrence, where he has broader powers to veto spending and contracts.