New Canaan and Darien's Aaa rating under review
More often than not, thanks to the relative wealth and success of many New Canaan and Darien residents, the financial troubles of the rest of the country are not felt as severely in this part of Fairfield County. However, with the recent debt limit issues in Washington and Standard and Poor's downgrade of the country's debt rating to AA+ from AAA, things may hit a bit closer to home.
In a press release July 28, Moody's Investors Service revealed that New Canaan and Darien along with 160 other local municipalities around the country will have their Aaa rating put to the test in another review relating to its negative outlook of the United States' bond rating.
Moody's stated the review
for possible downgrade affects
$63 billion of debt and the factors on specific credits include exposure to capital market disruptions and high federal employment. The review on places like Darien and New Canaan would focus on the municipalities' "reliance on capital markets, its dependence on federal revenues, its sensitivity to macroeconomic cycles, and its available financial resources to offset these risks."
"The ratings of these local governments, particularly those with a high economic dependence on federal activity, would be vulnerable to a downgrade of the U.S. government," said Moody's Senior Vice President Matt Jones.
Darien First Selectman David Campbell said Moody's decision to review Darien's credit rating may have been premature due to the fact that the town has a stable tax base, strong collection rate and a healthy fund balance. He said it would be unlikely the down would see it's Aaa credit rating downgraded.
"Our fund balance is 15 percent which is the highest of all the Connecticut municipalities," Campbell said.
Administrative Officer Karl Kilduff said he was unsure why Darien was included in the list of towns that could receive a credit downgrade. Despite numerous questions during a conference call with Moody's, none of the answers specified why Darien was chosen, Kilduff said.
Regardless of the final decision, Campbell said it would take a significant amount of time before the town found out if the credit rating would be effected.
New Canaan First Selectman Jeb Walker echoed Campbell's thoughts and criticized Moody's lack of specificity and clarity in this matter. He recalled discussions with Moody's about the reasoning for this review, which resulted in unclear responses. Walker said that when Moody's was asked why towns like Darien, Weston and New Canaan are up for review considering their tax base and track record, Moody's said it was because of their proximity to Bridgeport.
"Which makes no sense," Walker said. "Bridgeport is Bridgeport with its own problems. The mayor up there, Mayor Finch, is doing the best with his town to try to improve that situation. But they're not Darien, they're not New Canaan, they're not Ridgefield. These are completely different towns and situations."
Additionally, Walker said the criteria on reviewing the towns beyond what was said in their press release have not been revealed and Moody's has yet to figure out what that criteria will be.
"When we asked them about the criteria, Moody's answer was `we don't know.' And then two days later, Standard and Poor's rated all these towns as still AAA. The anomaly in this is, it was just the towns in our region. There are other towns in Connecticut that were unaffected completely who are not even in comparable shape to the towns in our region," Walker said.
"Now let's say worst case scenario, and I mean absolute worst worst case scenario, they actually downgrade New Canaan from Aaa to Aa+. The impact on us, in that case, is minimal and almost negligible. If we were to issue bonds, it might cost us 10 to 20 basis points more. We will continue to do our best but we have no idea how this will turn out because, quite frankly, Moody's has no idea on when they are going to do these town by town reviews and they haven't told us what those criteria might be. I suspect, with no data, they will quickly undo their almost capricious mistake on their part and it'll be back to business as usual."