
DATE: Wednesday, August 27, 1997            TAG: 9708270732

SECTION: LOCAL                   PAGE: B3   EDITION: FINAL 

TYPE: PUBLIC LIFE 

SOURCE: BY BATTINTO BATTS JR., STAFF WRITER 

                                            LENGTH:   94 lines

A CITY'S BOND RATING CAN AFFECT TAX BILLS

A city's bond rating: It's something most taxpayers don't pay much attention to, but it can influence their tax bill.

The bond rating impacts the interest rates cities pay to borrow money: A good rating means lower payments for as long as 30 years; a bad rating means taxpayers will have to fork over more to build things like schools, roads and sewer lines.

The rating system works roughly the same way banks decide how much interest to charge you for a loan. If your salary is low, your savings little and your bills late, you'll pay more for a loan than someone with a better credit rating.

Cities sell general obligation bonds on the open market to investors.

``The better the bond rating, the lower your interest cost, which translates to millions of dollars in the life of the bond,'' said Patricia A. Phillips, director of finance for the city of Virginia Beach. ``That can impact what resources a community has for other services or a lower tax rate.''

Standard & Poor's and Moody's Investor Services set those bond ratings, based on economic factors such as projected growth, debt, cash reserves and property tax base.

State law allows cities to borrow up to 10 percent of the value of their taxable real estate.

Seeking to assess the region's financial condition, the Virginia Beach Department of Finance, with help from finance officials in neighboring cities, recently completed a study looking at city bond ratings, debt, revenues, cash reserves and the economy.

The report was prepared for the Hampton Roads Partnership, an organization formed to harness the region's resources to promote economic prosperity.

Some findings in the report, which examines the fiscal year that ended on June 30, 1996:

Norfolk had the highest total debt at $718 million.

Chesapeake had the highest debt per city resident at $2,300. Hampton had the lowest at $1,136.

Chesapeake had the least ability to pay for its debt, because its residents earn the least relative to the city's debt load. Virginia Beach had the best.

As with households, cities often have to make tough decisions in the name of their financial health.

For instance in Portsmouth, city officials designed the 1998 fiscal budget to improve the city's bond rating. But that meant the city had to make a choice: Rather than use a $6 million budget surplus for much-needed services, the city set it aside for tough financial times and to help the bond rating.

The decision wasn't popular among school officials who wanted more money spent on education. But city budget officials said it was the right move for the city in the long run. Doing so enabled the city to create a fund balance of $13 million, or 10 percent of its general fund revenues, for the first time in a decade.

``We have taken a concerted effort over a number of years to rebuild the fund balance,'' said Peter Teig, budget manager for the city of Portsmouth. ``That is more difficult in years that the economy has not been as strong as it has been in the last couple years. The current economy has assisted us in reaching the goal.''

Norfolk had a scare earlier this year, when Moody's downgraded its rating one notch from AA to A1. The agency said it was concerned about the city's rising debt and slow growth.

But the downgrade hasn't hurt the city so far. Standard & Poor's left the city's rating intact and in a sale in April, Norfolk bonds went for a very competitive price, according to financial analysts.

The $43.9 million in bonds will finance streets and other infrastructure around the MacArthur Center and the downtown campus of Tidewater Community college campus; the renovation of Granby High School; a $1.7 million addition to Fairlawn recreation center; and about $9 million for the replacement of aging sewer lines citywide.

City officials say they plan to reduce debt levels in coming years. For example, the city expects to issue only about $20 million in general obligation bonds in 1998. ILLUSTRATION: IC NORCOM H.S. IN PORTSMOUTH

COMPARATIVE FINANCIAL DATA OF HAMPTON ROADS CITIES

GRAPHIC

KEN WRIGHT

The Virginian-Pilot

SOURCE: Compiled by Battinto Batts Jr. based on information prepared

by the City of Virginia Beach Department of Finance.

[For a copy of the graphic, see microfilm for this date.]

Norfolk issued bonds to pay for roads and sewer lines to serve the

MacArthur Center, now under construction. The bond-rating firm

Moody's downgraded the city's bond rating earlier this year, citing

concerns over the city's rising debt and slow growth. But the city

still received a good interest rate on a $43.9 million bond sale