Your Credit Quality Matters: The NH Municipal Bond Bank’s Overall Credit Rating is Dependent on Each Participating Organization Maintaining Solid Financial Management

Mark Decoteau, Director of NH Municipal Bond BAnk and Shiela St. Germain, Executive Director of NH Municipal Bond Bank

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

The New Hampshire Municipal Bond Bank was established by the state legislature in 1977 as an independent unit of state government administered by a board of directors, with a mission of providing access to low-cost tax-exempt financing for New Hampshire municipalities.

Since its inception, the Bond Bank has provided cities, towns, counties, school districts, and other local governmental units in New Hampshire with $2.4 billion of financing. The Bond Bank has made 1,188 loans to over 327 different governmental units statewide, many of which have borrowed from the Bond Bank several times. All local governmental units, including cities, towns, counties, school districts, fire districts, water districts, sewer districts and village districts, are eligible for participation.

Since 2008, the underlying credit quality of the Bond Bank’s participants has become a major factor in maintaining the Bond Bank’s credit ratings. Obviously, the stronger the credit rating of the Bond Bank, the more competitive the rates will be for participants. All of the credit rating services have modified their rating methodology in the last few years. The Bond Bank recently began a comprehensive and detailed review of the rating methodology used by different rating agencies in an effort to identify ways to strengthen the overall credit rating of the Bond Bank.

What has become immediately apparent during these recent discussions is that the fundamental credit strength of the borrowers plays a major role in the rating outcome for pooled programs like the Bond Bank. One agency considers the underlying credit strength of the borrowers as the highest factor in the determination of a credit rating, attributing 50% of the total rating to this factor alone.

The Bond Bank monitors the credit quality of its borrowers throughout the term of their loans. Bond Bank staff maintains contact with participants’ management teams and monitors media reports about the entity and surrounding area as they occur throughout the term of a loan. Annual audits and other financial reports are also reviewed, as they provide key information on the financial health of loan recipients and this is often the same information used by the rating agencies in determining the ultimate credit rating of the Bond Bank.

Specifically, the Bond Bank tracks several different factors which relate to the financial strength of participants. Some of these financial factors and corresponding state averages are shown on Table 1. The first monitored factor is the total debt outstanding and what portion of that debt the entity plans to retire during the coming fiscal year. The debt as a percentage of the total property valuation as well as debt per capita is also tracked. The next factor which is monitored is the tax base of the entity, whether that tax base is increasing or decreasing, and the status of any outstanding major abatements. The Bond Bank also monitors financial statistics, including metrics such as tax revenues, unassigned fund balance, and the percentage of general fund expenses used for debt service. Demographic factors such as population base and the area’s largest employer are also assessed. Finally, the Bond Bank evaluates any outstanding litigation which might involve the entity. In all of these factors the Bond Bank is attempting to identify trends which could negatively affect the overall financial standing of participants and the Bank as a whole. In the future the Bond Bank will also track pension liabilities, which are required to be included in financial statements of fiscal years beginning after June 15, 2014 (or December 31, 2014 for calendar fiscal years) under Statement No. 68 from the Governmental Accounting Standards Board.

It is best management practice for the legislative and governing bodies of cities, towns, school districts, counties, etc. to regularly review the same information which the Bond Bank monitors and take prudent steps to ensure the continued financial success and strength of their organization. While New Hampshire state statutes addressing debt limits for municipalities, schools and water departments and required reporting to the Department of Revenue Administration provide some framework for good financial planning, there are other financial goals and limits which a community or organization can establish to help improve the overall financial health of the entity. Adoption of local policies also help ensure that boards are consistent in their financial decisions as individual decision-makers change over time. Governing boards which do not have professional financial staff or advisors can seek assistance from the New Hampshire Municipal Association (NHMA) or the NH Government Finance Officers’ Association (NHGFOA) on where to find current information regarding best management practices. The Bond Bank, NHMA and NHGFOA are teaming up to prepare training on how to assess credit quality during the upcoming NHMA annual conference in November. These organizations also provide training opportunities for new board members and financial staff members throughout the year. Good planning and sound management are key aspects of financially strong organizations.

The financial health of the Bond Bank and the resulting credit ratings from outside agencies are directly affected by the financial health of the participants in the pool. Through continued diligence and sound financial planning, members can help the Bond Bank maintain or even improve its overall credit rating, resulting in better rates of borrowing and ultimately lower costs to taxpayers.

Mark Decoteau is the Town Manager of Waterville Valley and also serves on the Board of Directors of the NH Municipal Bond Bank.

Sheila St. Germain is the Executive Director of the NH Municipal Bond Bank. Information about the NHMBB is available on their website at