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Truman credit rating means savings

August 7, 2010
Kylie Saari — Sentinel Staff Writer

TRUMAN - The city of Truman got some welcome news that could help put a spring in the step of its residents.

In preparation for construction work on the voter-approved fire hall addition, the city applied for a credit rating, something it has not done in the past.

The city earned an A+ rating, a strong outcome for a city of Truman's size.

What it means for Truman residents is lower interest rates for the $550,000 bond to build an addition onto the current fire station.

"The A+ bond rating should result in substantial savings in interest costs over the 20-year life of the fire hall addition bond issue," said Truman city administrator Monte Rohman.

Rohman said Truman had a rating years ago, but the rating agencies stopped rating small towns for several years, before recently reinstating the practice.

Truman began the process of getting a rating with Moody's, an agency that works with many Minnesota cities. According to Bill Fahey, with Northland Securities based in Minneapolis, Moody's was not comfortable giving a high rating to Truman because the company doesn't have a standard in place for small cities.

So Truman stopped their analysis, and sent the same information to Standard and Poors, an agency similar to Moody's.

"Moody's credit committees still has a rating foundation based on bigger is better," Fahey said. "Standard and Poors ratings is based on 'defaults' and economic strength of the community and area.

"The rating presentation was exactly the same (as Moody's., S & P recognized the value of no defaults, strong fund balances, strong cash and investment balances, decisions by the city council to make a tax levy to make up for lost local government aid, the location of Truman to Fairmont and Martin County and Mankato and Blue Earth County, regional centers for employment.

"They also recognized the two ethanol plants and the soybean crushing plant and the relationship of the soybean crushing plant to the processing plant in Mankato and the job opportunities for citizens seeking employment in trucking. The city has low debt as a percent of valuation and debt per capita - two ways to express debt to the financial world."

While Fahey and Truman City Council were well aware of the town's benefits, the results were still a pleasant surprise.

"The A+ is a superior rating for the City of Truman," Fahey said. "... The A+ rating is above my greatest expectation and two steps above where similar sized communities are rated."

Several cities and school districts have reported a rating increase in recent months, but Fahey says Truman's case is different.

Many of the rate increases reflect the result of a change to the way ratings are arrived at by Moody's. Since Truman had no prior rating, the rate increases did not apply.

"Since the economic crisis on Wall Street, and before, the rating process and practice of all rating services have come under the critical eye of the Congress and have been accused of providing extremely high ratings for securities that nearly brought down Wall Street," Fahey said. "With that background, each rating company determined the need to modify their credit rating practice and develop a 'Global Rating System.'

"It took nearly two years to complete ... Standard & Poors was first to implement their new program and we saw credit ratings higher than before."

 
 

 

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