Countdown to town meeting: Should the town tap into its rainy day funds?

It’s rained buckets this year, so it seems only appropriate that one of the big questions at town meeting next week will be whether to tap into the town’s rainy day fund to help offset the tax burden.

Currently the town has about $907K in its rainy day fund — officially called the stabilization fund. The Board of Selectmen and the Advisory Committee disagree quite strongly on whether to spend any of it. The Advisory Committee say yes, the Selectmen say no.

Ultimately, it’s up to you as voters to decide. To help you out, here are the opposing viewpoints.

The Advisory Committee position: Spend it
The Advisory Committee believes the town needs a rainy day fund, but not one as big as it has today. They recommending holding on to $400K to cover unexpected expenses, and then spending the rest to help keep taxes lower.

“We’re going to have a tax increase regardless of whether we use stabilization money. Our position is to have less of an increase,” Advisory Committee member Tim Langella said at a meeting this week with the Board of Selectmen.

The Advisory Committee recommends the use of stabilization money in part to fund school technology purchases and to keep the road maintenance budget at normal levels.

While some have argued that having less money in the stabilization fund would negatively impact the town’s bond rating, the Advisory Committee says an analysis of the data shows that’s not the case. “There’s no correlation between how much you have in the stabilization fund and your bond rating,” Langella said.

They also argue that it’s not in the taxpayer’s best interest to keep money in the stabilization account.

“Voting to put your money into a town account, or leaving it there, is like putting your cash into a mattress. Of course it is nice to have a mattress stuffed with cash, but you realize that putting it there costs you money that you would otherwise earn in interest,” Advisory Committee member John Butler said via email. “Advisory cannot responsibly recommend that you leave your money in town accounts.”

The Board of Selectmen position: Save it
For the Board of Selectmen, the issue comes down to the fact that our budgets are structurally unbalanced — that is, we spend more money than we take in. Using stabilization money, they argue, just puts a band-aid on the problem.

“The use of one-time money continues to create structurally unbalanced budgets that are unsustainable and each year put us further in the hole,” Selectman Bill Boland said. “If we can’t bring in enough money to fund our budgets, then we cut our budgets, if we have to lay off teachers, firefighters, DPW workers, or police officers.”

The Selectmen say the guideline they use is to have at least 5% of the town’s budget held in reserve. Five percent of Southborough’s budget would be about $2M. “We’ve been able to do some very good things with reserves like fund the ladder truck,” Boland said.

Selectman Sal Giorlandino said that once taxpayers start using stabilization funds to decrease the levy, it becomes more and more tempting to continue to do so. “It’s a slippery slope that’s going to lead to us having zero dollars in stabilization,” he said.

Selectwoman Bonnie Phaneuf said instead of using stabilization funds to balance the budget, they have been asking town departments to make cuts in both operational budgets and capital items. As part of the cuts, the selectmen recommend not funding school technology this year, and reducing the road maintenance budget by $100K.

“Our department heads have stepped up to the plate. Every week came in with something more to cut,” Phaneuf said. “We’re all trying to do the best for this town.”

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Pat Quill
13 years ago

OK, so I’m not sure if I should post here or continue my “discussion” with Al from
“Countdown to Town Meeting: What do you want to know” (April 6th). Same topic though…..

In reading these positions from both the Advisory Board and the Board of Selectman it
is clear they have very differing positions on what to do with stabilization funds. This
will be a big deal at Town Meeting and if it comes to a vote, I decided I wanted to be
fully educated on this issue. So here goes.

First, without doing much research and just going on these 2 arguements posted, I have to say I am starting to doubt my initial position of “of course tap into it….. it’s not only raining, it’s pouring” and “give S.boro taxpayers a break and dip!”.

Here is why….from the simple standpoint of being a parent, homeowner and taxpayer, I have to say Al’s arguement may be oversimplified and perhaps weak. When anyone looks to lend
you money, issue you a credit card, etc.. they look at your finances…right? They look
at how much equity you have in your home, how much income you have, how much
debt you have, etc. I am finding it hard to believe that when we are analyzed/reviewed by Moodys for municipal bond ratings that they WOULDN’T look at our stabilization fund.
It’s a piece of our towns puzzle…part of our whole fiscal picture as a town, is it not?

Moodys rating for municipal bonds are derived from five major credit factors (got to
love Google). In other words, they look at the 5 following factors when they rate
municipal bonds or general obligations. They are as follows: 1) legal security 2)local economy 3) financial operations 4) debt profile and 5) management practices of the governing body and administration. ( By the way, Southborough’s bond rating is Aa2 (Aa1 being the best,
then Aa2, Aa3. Or one step below, just A1, A2, A3). We appear to have a very good rating (high quality) and this is as of 12/2009. I believe we are scheduled to be rated again in
2010. All this per Mass. Dept. of Revenue, Division of Local Services).

Isn’t #5 (management practices) part of what a stabilization fund is all about? I know it may be difficult to look at the amount in a stabilation fund for a town and depend on that for a sense of security for that town (i.e. no way for them to know if the money is earmarked for a new playground or 5 new ladder trucks, a new school) however they could look at the fund over time and how we have used it, etc. Do we spend like drunken sailors or are we a fiscally responsible town?

I don’t agree with simplifying the fund as “putting your cash into a mattress”. It’s much
more complicated than that and I believe it is unfair to label it like that for people who either
don’t understand the fund or don’t have the time to dig deeper. ARE we just putting a band-aid on the problem? BOS makes a good point…..our budget is unbalanced, we do spend more than we take in. What would I do if I had a job and my debt was larger than my paycheck? Maybe not dip into my kids college fund or my retirement, but get a second job? ( i.e. increase tax rate?). BOS makes another good point…. if we can’t bring in enough money to fund our budgets, then we cut our budgets. Of course, they then cannot say we need a new police cruiser either, but that’s another blog.

This is not a black and white issue here …. not as easy as saying keep it under the
mattress or spend it. Can Tim Langella elaborate on or back up his claim that there is
no correlation between how much you have in the stablilization fund and your bond rating?
Is that direct from Moody’s or is it his feeling based on our rating in the past?

I think we need more info here. I may still hold onto my original position of “use it” but,
I want to be better informed. Any takers??????????????????

Pat Quill
13 years ago

i know, i know… I spelled argument incorrectly several times.

Al Hamilton
13 years ago


Don’t apologize for weighing in on this subject, it is important and deserves discussion. There are a lot of misconceptions related to this topic.

I used to be adamantly opposed to the use of Stabilization, fearing its impact on our bond rating. I believe that Tim held a similar position. However, when we looked at the data we both changed our minds.

John Butler has taken a very in depth look at this and there is an excellent position paper on this on the Advisory Web Site.
Go to the Files section and then scroll down to the” FY 2011 Documents” Section and open the file called “Advisory Consideration of Cash Reserve Questions 2-26-10” (Sorry I don’t seem to be able to get to a direct link). The underlying data is also available in a spreadsheet in the same section.

There is a chart on Page 4 that shows the relationship between cash reserves and bond rating. It is essentially a random scatter plot indicating no relationship.

If I were convinced that keeping large balances in the Stabilization fund conferred material benefit to the Town or its Taxpayers I would change my mind. But after looking long and hard I have not been able to find one. Advisory has been debating and investigating this for several years and has come to the same conclusion.

By the way if our bond rating has not changed in over 10 years. It did not go up when we accumulated the funds and did not go down when we spent them. If our bond rating went up or down by 1 grade it would only effect our cost of borrowing by a few hundredths of a percent.

Pat Quill
13 years ago

Has anyone tried calling the local Moody’s office (located in Boston) and asking the
question directly? I’m sure the analyst who reviews our town is probably from their
local Boston office.

Why is the BOS and Advisory in complete disagreement on whether the amount in the fund impacts our rating? I would think this is a yes or no question… does
Moody’s use this figure or not? I’m sure we pay Moodys a fee for securing our bond
rating for investors, no? We shouldn’t have to review 10 years of data. I would think
Moodys either considers it or not. Am I missing something? I’m not being a wise-ass,
I really am wondering if I am missing something! Is it something that they cannot say
they look at, but secretly do?

(I feel like I’m watching “Lost” … the more I watch, the more questions I have !!! )

Al Hamilton
13 years ago
Reply to  Pat Quill

Advisory did in fact look at the rating factors and technical reports from S&P:

(Chart showing the relationship between per capita income and municipal ratings)

“The above chart shows Per Capita income and Bond Rating. Notice that the data trends upwards to the right. The higher income level of the people in a town, the better is the bond rating. This is a graphic illustration of what we expect to see when the R2 correlation is 0.70.

This data doesn’t support a claim that cash reserves never enters the mind, or passes the lips, of someone doing a rating, but rather that, in the end, they don’t actually use this factor in a way that would be worth paying for. Furthermore it may explain why employees of bond rating companies, when asked how to increase a Town’s bond rating, urge municipal officials to increase cash reserves. Such a suggestion is a far more palatable response than telling a mayor or a Board of Selectmen the painful truth, “The only thing that will help is higher per capita income. We suggest you get wealthier.”

In addition to the foregoing analysis and supporting it, we have found that a technical publication from one of the major bond rating agencies (S&P) agrees with this finding. It says that reserves are not a significant empirical factor in its own bond ratings particularly in small municipalities. The factors that they say do correlate with bond ratings were the ones we found in 2005 and 2010 in our empirical analyses. This correspondence strengthens our trust in both the S&P report and our own results.”

Pat Quill
13 years ago

By the way Al, thanks for the reply…. I will check out the position paper.

Pat Quill
13 years ago


I’ll get to the position paper later…..lot of info to read. However, I will say you take 2
specific data points and compare them in isolation….not taking into consideration any other
factors. Not sure looking at them in isolation is a true picture. Anyway…………….

You still haven’t addressed my points about looking at the towns financial standing as a whole
when being bond rated. Your argument is that stabilization fund size is not correlated at
all to bond rating. That may, in fact, be true…. IF Moodys ONLY looked at stabilization funds
only. I’m saying Moodys looks at the whole ball of wax INCLUDING the
stabilization fund. No one is saying they only look at the fund but thats what you presume in
your position paper. It is one piece of our financial picture. Your position is too narrow.
There are too many other factors that you are leaving out of the picture. To say that the
two are not correlated and therefor the fund should be carved out just doesn’t fly with me.

Keep in mind, if our bond rating drops from Aa2 down to a Aa3 it will have a huge, long term
financial effect on this town. General obligation debt goes on for YEARS and if the interest
we have to pay on that debt goes up even a tiny bit… your talking higher property taxes to
cover that debt for a very, very long time…………….just to cover 2 items in a budget for 2010.
We need to think long and hard about this.

Al Hamilton
13 years ago
Reply to  Pat Quill

Actually the measurement we used was the broader measure “cash reserves” which includes stabilization as well as other sources of cash and there was no correlation.

I did a little research and if our bond rating fell from Aa2 to Aa3 the interest rate we would have to pay for a 20 year bond would increase from 4.72% to about 4.77% based on the rates today. (Note I had to use the S&P Equivalent AA and AA- and interpolate between AA and A) The difference in borrowing costs for $1,000,000 over the 20 years is $367 per year.

All of the rankings in the A’s indicate high creditworthiness and very very low risk of default which is really what the rating companies are worried about.

The interesting thing is that we are not talking about the other dimension of credit risk – total debt service. Southborough has a very high level of debt service. About 15% of our budget is devoted to debt service, including our share of Algonquin. This is about twice the state average but understandable given the massive school building program and other capital programs (Cordaville and Beals Property) we have undertaken.

There is no upside in a high grade bond and the rating companies are really assessing if the community will be able to honor its debts in 10 or 20 years. Current cash reserves really don’t attest to that as they can be spent over a few years. What matters is that there is sufficient personal income in the community to be able to fund the debt. Property taxes are regressive and as a consequence wealthy communities devote a smaller percentage of their communities personal income to local taxes making them a safer bet than poorer communities. No body is going to worry about Beverly Hills or Lexington bonds but Detroit and Lawrence are another story.

The long and short of it is if you want a good credit rating invest in high quality schools which will attract well educated families with above average incomes.

Pat Quill
13 years ago


Al, I agree that a downgrade just one level from Aa2 to Aa3 does not have a much higher borrowing cost, but a downgrade just one level further (into single A rated) would be expensive. The difference between Aa rated and single A rated is 0.35%, or $3,500 more per year or $70,000 over the 20 years on $1 million borrowed. (again, got to love google….go to
municipal bond website for current rates on 10yr., 20 yr rates, etc). Point to remember,
towns usually borrow a hell of a lot more than 1 million.

Basically, the point is that the town should be minding our financial situation closely and not lose sight of the fact that unbalanced budgets, reducing stabilization funds, and other factors that help determine credit ratings (and borrowing costs) as I pointed out in earlier posts. It can have a snowballing negative effect on future budgets and the burden is on town residents. Southborough’s financial profile reflects all of the decisions that we make (e.g. size of budget deficit, how much we tax, how much of stabilization fund we use) and that we will make
this April.

I guess one of the reasons there is a bee in my bonnet….. I don’t want people to think
that stablilization fund does not matter…. it does. I think it is borderline manipulative to funnel
the facts surrounding the decision of whether to use the funds or not into one simple fact
and say there is no correlation between the two so we can go ahead and spend it. Moodys looks at the whole ball of wax. With a budget out of whack, revenues down, downturn in the
economy, unemployment high, delinquencies on property taxes, and perhaps a relatively low stablilization fund….you are starting to mold that “ball of wax” into a riskier picture for our bond rating. Are we in fact a good risk for managing our debts over 10 or 20 years if we cannot
manage our budget this year and probably the next few? As everyone has been saying,
next year is going to be even worse. Just a thought.

The Reasonable Man
13 years ago

Selectmen suggest that we are unbalanced now because today we spend more than we collect. Therefore, I assume the theory goes, we need more tax money to cover that gap. Well, more tax money is exactly what the Stabilization fund is!…it simply is where we parked our “excess” taxes back in better economic times when we collected more than we spent! We need it now and there simply is no reason not to spend it. It is idle taxes just sitting there.

The idea that we should “save” it for something down the road is silly. If we really need some theoretical thing down the road, we can levy taxes AT THAT TIME if we choose to. We have expenses we need to cover today, and we have idle tax money already available to cover it. Why would we continue to hoard old tax money we’ve paid in the past only to pay more in new taxes NOW?

I suggest to you, Pat, that the Selectmen actually haven’t given you one good reason for not spending Stabilization money. Read their “justifications” again below — these are not good reasons!

BOLAND — we use it for good things like the Ladder Truck.
Not so fast, Bill. Let’s pretend we had no Stabilization money to use for the Ladder Truck. Would we, AS A TOWN, have decided not to borrow the money to buy one? I doubt it, assuming we really needed one. We would have borrowed the money and then paid a marginally higher tax rate to pay back the loan for an item we decided we neede. AT THAT TIME That’s how it’s supposed to work. A decision made at the time of the need.

GIARLANDINO — if we spend part of the Stabilization money now, it will be too tempting not to spend it all (the so-called “slippery slope” that lawyers always like to talk about).
Huh? It’s our TAX MONEY JUST SITTING THERE. Maybe we should spend it, maybe we shouldn’t. But Sal doesn’t actually say WHY we shouldn’t spend it. His reasoning just assumes the answer — that it’s bad to spend it. And, therefore, Sal says, if we do some spending (something he just assumes to be a bad thing), then we’ll be tempted to spend more (just more of a bad thing). Again, Sal never says why it’s a bad thing — and probably hopes you won’t ask him.

PHANEUF — the Department Heads have “stepped up” and cut themselves to the bone. Again, huh? What does that have to do with whether drawing from Stabilization is something we should or shouldn’t do? It just artfully dodges the question.

People, please wake up. If there was a rock solid reason why we SHOULD keep this money you would have heard it by now. The bond rating excuse is simply not true. Please demand that your elected leaders back up what they say with ANY shred of evidence. Please.

The Natural Truth
13 years ago

Boland and Phaneuf have got to go!!!!

They are the two biggest reasons why Route 9 from Mobil to 495 are under developed. When their seats are up, the bloggers and critics have to run. I’ll be there, I will run. So Bill and Bonnie enjoy your time but you’ve awakened the majority of this Town.

Al Hamilton
13 years ago

If you look at the 20 year municipal bond rates (as of today) the difference between an AA (which is the equivalent of our Aa2) and an A which is the equivalent of an A2 (3 steps below our current rating) is 0.14% which equates to $944 per year per million borrowed. It would be very unusual for us to go up or down by more that one tick (Aa1 = AA+ or Aa3= AA-)

Simply put, there is no relationship between cash reserves and our bond rating and the rating companies admit it. Even if it were true the penalty/reward for an upgrade or down grade might amount to a few dollars per household per year based on our current high levels of debt. Is it worth holding millions of dollars of taxpayers money to secure this benefit even if it were true? The answer in my book is no.

Frankly, one of the considerations for using the stabilization fund is that it is supposed to be for a rainy day, as you have suggested and this is the year to help hard pressed tax payers.

I don’t want to dismiss your concerns about our unbalanced budget. Both the Advisory and Selectmen’s budgets are unbalanced we just draw down different asset accounts. Advisory draws down stabilization and the Selectmen draw down K-8 technology and road assets by under funding both.

We have big problems. Our pension benefits and vacation benifits accounts are underfunded, our benefits program is not sustainable, and our occupancy plan is a disaster. Sometime in the next 3 years we are going to have to ask the voters about what they really want in the way of public services and are they willing to pay for them. Our capital needs over the next few years are pretty modest, I think there is only a slim chance in any scenario that we will build a police station in the next 3-5 years.

Pat Quill
13 years ago

Al, as you know the cost of borrowing for the town changes over time and the difference in borrowing costs between rating levels also changes. If you click on the link you yourself provided you will see what I mean. You point out that the current difference in cost between the AA and A rating is low and would not result in much more of a burden for taxpayers. Based on the yields today, you are correct…. the difference is small. But, take a look at the difference in cost between AA and A from just one month ago and you will see that it can be quite high depending on the market. The difference only one month ago was 0.92%, or $92,000 a year for every $10 million in bonds, $1.84 million over the 20 years. Maybe it will be higher in the future and maybe lower, but it could be quite high precisely at the time we need to issue bonds. These things can snowball on you and can become a big burden at the worst possible times (You point out at the end of your last post that Southborough has “big problems” ahead of us…. here comes the snowball).

As for your consistent comments that there is no relationship between cash reserves and ratings and the “rating agencies admit it”….. that is just plain incorrect and quite frankly you do
a disservice to resident by saying that. I spoke with a senior Moody’s municipal bond rating analyst, a person that is directly responsible for rating towns like Southborough, and she said reviewing cash balances/stabilization funds is ABSOLUTELY part of the process they follow when analyzing a town’s credit rating. In fact, they are looking at reserves now more than ever as there are more stresses on town and state budgets due to the economy AND cash reserves are a more important factor than in years past. Maintaining cash reserves over time is another component of financial strength for a town and anyone evaluating that strength would of course include the cash reserves in their analysis along with a whole bunch of other measures. Moody’s is no different and they told me that directly (right from the horse’s mouth), so I’m not sure why you keep arguing otherwise. If you need further proof, you should speak with the town officials who handle our financials and borrowings. I spoke with someone from the Treasurer’s office and was told that the rating agencies definitely look at the level of reserves when evaluating a town, it is one of many factors but it is definitely part of the review.

I saw an announcement yesterday (April 7) that Moody’s just rated a new Southborough bond and they gave us our Aa2 rating with OUTLOOK NEGATIVE, the first time Moody’s has given Southborough that negative designation. That means a rating downgrade could occur in the relatively near term and definitely raises the importance of the town’s decision on how it handles the cash reserve question.

Regarding the position paper put out by the Advisory board reviewing Cash Reserve Policy…..
I find it really troubling. As I have pointed out before…. you take 2 isolated data points
(Moody’s rating vs. cash reserves as % of budget) and plot them to make the point that
there is no correlation. For goodness sake, of course Moody’s doesn’t look at only those
2 data points! It is sophmoric to use these 2 points in isolation and then generate an entire
thesis and not take into consideration any other major factors that Moody’s uses to
issue bond ratings. It is ridiculous to plop that review on the table as an excuse to
lure residents into your way of handling the budget and thus making it ok to use cash
reserves. Balance the damn budget!

Stabilization fund is not just a “rainy day fund” and I wish people would stop referring
to it as such. IT IS PART OF OUR TOWN’S FINANCIAL PICTURE. It should not be thought of as just a bag of money stashed away for us to use when we want. Yes, we CAN decide to use it…. it is our own tax money! However, we need to be aware that it is part of what determines what our credit rating is according to the financial institutions that review our town and issue our bonds and determine how expensive it will be to pay down our debt. Please, stop referring to it as just “our rainy day fund”. It is misleading and oversimplified.

In conclusion, I have to say that personally I side with Board of Selectman here. Let’s
focus on balancing the budget and leave the stablilzation fund alone. Why take the risk
of impacting our credit rating at a time when our entire financial picture as a town is
stressed and at a time when our credit rating “Outlook”, according to Moody’s, has been
offically determined to be “Negative”.

Al Hamilton
13 years ago


First, thanks for the interesting conversation, even if we never agree I respect the fact that you are digging into this important issue.

Moody’s did not single out Southborough for a negative outlook. They put every municipality in the country on a negative outlook. This is probably appropriate given that all municipalities are struggling with the same issues we are dealing with and often dealing with far worse situations:

While I have been defending the Advisory position I actually think the burden of proof should be on the party recommending that we take or hold taxpayers money to prove that there is a real, quantifiable, benefit to the taxpayer in doing so. So I will ask the reverse question:

If having a big stabilization fund would improve our bond rating how big would it have to be to get us from an Aa2 to an Aa1? Clearly in the past $2.9 million did not do the job.

I agree with you that at different times the yield curve varies and risk premiums vary when making this argument I typically use the most current information which is today’s rates. However, you keep implying that if we were downgraded we would proceed from an Aa2 (Moody’s) to an A (S&P/Fitch). If we were down graded it would likely be from an Aa2 to and Aa3 (AA- S&P/Fitch). The Equivalent of an A rating in the Moody system is an A2 which is 3 steps below our current rating.

There is also the equity issue to consider. A fair number of the folks who put their tax monies into the Stabilization fund in the 90’s no longer live in town. They, in my opinion, never received any benefit from these tax monies. Certainly they will not benefit from the new “Quint” fire truck or reduced taxes if we use the monies to offset the tax rate. I consider this unfair.

I believe in pay as you go and if we need a large capital asset it is much fairer to ask the people who live in town to authorize borrowing so that those who benefit from the asset pay for it rather than tax people who no longer live in town which is in effect what we do if we use Stabilization.

Southborough survived and prospered for over 250 years without a stabiilzation fund and we don’t need one now.

Al Hamilton
13 years ago


I do in fact agree with you that we need to look at the whole financial picture and when we do there are some pluses and minuses.

On the Plus Side

Southborough has a per captia income that is well above average. The money is available for public use if the body politic decides to vote for it.
We have a mixed tax base which includes a reasonable amount of commercial and industrial property.
We have $2.3 million in the overlay reserve most of which will come available in the near term.
I have read the last few auditors reports and there are no glaring problems with our financial management.

On the Minus Side:

We are carrying a very heavy debt load and will do so until the middle of this decade making further borrowing problematic in my opinion.
We have significant unfunded liabilities in terms of vacation and pension benefits.
We have a benefits program which is consuming more and more public resources.

If I were a rating agency I would be far more focused on the heavy debt load and unfunded liabilities as risks to our financial future than the size of the Cash Reserves. These are the factors that did in GM and Chrysler. We are no alone in this problem and resolving these issues will be difficult and require sacrifice from a number of parties.

Pat Quill
13 years ago

Ok, I swear this is my last post on this topic.

1) you bring up the equity issue “folks who put their tax monies into the fund in the 90’s no
longer live in this town”, etc…. come on! With all that great info I just laid out for you, that
is your comeback?
2) you may believe in pay as you go, but Moody’s may not. You’re missing, dodging,
ignoring the point……. stablilzation fund is one part of the whole financial picture for the town.
3) “they put every municipality in the country in a negative outlook”….. Al, when my
kid comes home from school and tells me everyone in the class got a “C” on the test, I
give him that look and say “I don’t care about the other kids my dear, only you”. Al, I am
giving you that look right now.
4) Southborough also survived and prospered for over 250 years without computers,
ATM machines, Walgreens and preschools but that doesn’t mean we should do without
them now. Obviously, with your final comment Al, you are not open to looking at the issue in a different way and perhaps keeping an open mind re: stabilization fund which is too bad considering you are part of the town’s Advisory Board. You simply refuse to look at the
facts I have laid out for you, some taken directly from the source’s mouth.

FINALLY, at the very least, I have laid out, in a public forum, some important information
for residents to read and than make an educated decision for themselves.

Pat has left the building……………………….

Al Hamilton
13 years ago
Reply to  Pat Quill

I would remind you that I started out exactly where you are and changed my mind. If there was data, not anecdotal discussion, that indicated there was a relationship between municipal bond ratings and cash reserves I would reconsider my position.

The fact is that this analysis based on data from 104 Mass Towns with populations between 5000 and 15000 indicates that there is no correlation between cash reserves and bond rating. There are towns with significantly smaller cash reserves than Southborough with higher bond ratings and towns which significantly higher cash reserves that have lower ratings. This analysis was done on 2 separate occasions (2005 and 2010) and the results were the same.

If what the analyst said to you was true then the pattern should show up in the data. It does not. I am kind of a hard nosed person. When the words and the data disagree I believe the data. When the data is then backed up by a technical report from S&P confirming that the main factor in rating is per-capita income I am convinced because that pattern shows up clearly in the data.

If you can point me to data, not a conversation, that indicates that there is a relationship I would be happy to reconsider my position. But, I am a numbers guy and the best numbers I have seen say there is no relationship. I have based my recommendations on this subject based on the best data I have available to me.

Neil Rossen
13 years ago

My decision is clear. Minimize taxes by using the stabilization fund. I prefer that we take on the unions once and for all, and try hard for no new taxes. It’s bad enough that the Federal Administration will be socking us with VAT after the elections (to fund health care and public servant pay and security), but there is no reason our town should do the same.

I expect a reaction from bleeding hearts. I have nothing to add.

John Butler
13 years ago
Reply to  Neil Rossen

It is probably worth noting that Neil and I have sharp differences of outlook on many Town matters. I support spending for a lot of things that I guess Neil would not. In general I’d like to see Town services maintained at a high level, even if sometimes that means higher taxes. However, Neil and I agree on this topic because the facts are completely clear: you can’t save yourself money by leaving your money in a Town bank account. If the Town isn’t using the money, you should have it.

John Butler
13 years ago

I want to make a few peripheral comments on this conversation. I am the principal author of the study of this subject undertaken by Advisory Committee.

The question comes down to this. “Can Advisory ever recommend to voters that it is in their best interest to pay higher taxes in order to leave extra money, unused, in Town accounts, above about $400,000?” The answer to that question, is clearly “No, we can never honesty make that recommendation.” Voter/taxpayers can never benefit from such higher taxes to keep higher balances in Town accounts. The full analysis is in the paper mentioned above. But, it comes down to, “You will always lose money, in the form of interest, if you do so, and you cannot come out ahead.” You shouldn’t leave money on deposit at the Town any more than you would at the electric company. We can’t recommend it to you.

Now think about what our bias might reasonably be in this. If we could honestly recommend this, our job on Advisory would be much easier. I would love to be able to honestly recommend it. If we think we need money for services it is always better to have it already, than to need to ask voters at the time to raise taxes for it.

Any business that could get people to put money into its accounts in advance of delivering services would love to do so, and the Town, as a service delivery operation, is no different. If the voters choose to raise their taxes more in order to leave more money in the Town’s Stabilization account, part of me will know that next year I may have a little easier time on Advisory figuring out how to come up with money, than if they instead decide to raise taxes less by taking more from Stabilization. So I have no self-interest as an Advisory member in making the recommendation that I do. Unfortunately for Advisory members, “Pay only as you go.” is the only sound advice for voters. I wish it were otherwise. If the data supported the opposite case, I would make that case far more happily than I make this one.

Another thing. Advisory has people with Phds in economics and Harvard MBAs and every kind of advanced degree relevant to this topic that you can think of. Yet we were once all wrong about this. Not one of us intuitively guessed the correct answer to this question. Before studying it, every one of believed that we could honestly recommend to voters that they keep high balances at the Town, myself included. After studying it, none of believe that now. This is one question that you cannot make a guess about. Nor can you get the answer from Moody’s, who sells services in this area and doesn’t want the political hot water of telling the truth: the way to get a high bond rating is to have wealthy taxpayers. There is no other reliable way. But, even if cash reserves reliably affected bond ratings, which they do not, you, as a taxpayer cannot come out ahead by parking your money at the Town. The numbers just don’t support any possibility of your saving money for yourself as taxpayer by leaving your money at the Town. If you want to see the details of the analysis consult the paper mentioned in Al’s comments.

Bottom line. Advisory would love to be able to recommend you leave your money at the Town. We have to recommend budgets and it would be much easier if we could have high balances to work with. Secondly you can’t guess the answer to this, or, we haven’t found anyone who can. You have to study the data and the analysis. The analysis is as fair as we can make it for voters. We present it to voters because it is true, even though it makes our job harder. As a voter deciding on how much to dig into your pocket, you should vote the necessary taxes, and no more. “Pay as you go.” is the only sound advice for taxpayers, perhaps unfortunately.

James Bond
13 years ago

John, your references to “PhD’s and Harvard MBA’s” notwithstanding, I think there are errors in your analysis and I think you should be careful about making such categorical comments as “Voters/taxpayers can never benefit from such higher taxes to keep higher balances in Town accounts”. Really John…NEVER benefit??

Let’s start with a few errors in your analysis that apparently the Harvard MBA’s did not catch. First of all, using your assumption for 3% earned on money held in cash reserve, 8.5% assumed taxpayer borrowing cost, and $1.5 million kept in reserve by the town, we’ll agree that the annual carry cost is $82,500. To be able to recoup that cost you indicate that we would have to save 0.25% in bond borrowing costs on $49.8 million in bonds. I may be wrong, but I think if the town saved 0.25% on $33 million in bonds, we would recoup the $82,500 annual cost to hold the reserves (0.25% x $33 million = $82,500). I’m not sure where you get the $49.8 million, the math wasn’t detailed in your report. Show me where I am wrong.

Furthermore, if Southborough’s bond rating is downgraded into single A territory from the current Aa2, the difference in bond rates could be as high as 1% for a 20 year bond, not the measly 0.25% you use in your report. Both you and Al Hamilton focus on the smaller number, but the difference between AA and A was almost 1% just one month ago (as shown in the link Hamilton posted earlier). So if Southborough gets downgraded a few notches, to make up the $82,500 we would only need to save 1% on the next $10 million in bonds we issue. That type of bond issuance could occur in the next few years. So how can you declare that there is NEVER a benefit from paying higher taxes while maintaining a higher reserve account, when there appears to be a potential benefit to the town based on the facts right in front of us today??
Al Hamilton (and you in your report) believe that the potential for Southborough to be downgraded a few notches is very low and that the difference in interest costs between ratings is miniscule. You are both wrong on both accounts. Southborough was assigned a Negative credit outlook in our last bond offering which occurred very recently (February 2010). Contrary to Hamilton’s post earlier today, the Negative outlook was assigned SPECIFICALLY to Soutborough and for specific reasons (including our declining reserve balance), well before Moody’s decided to assign Negative outlooks to the entire Municipal bond market (they did that this week, April 6). The Negative outlook assigned specifically to Southborough makes it HIGHLY LIKELY that we will be downgraded from Aa2 to Aa3 within the next year or so. So in the short term we could be at Aa3 based on the facts we know today. If things continue to be tough for our town over the next few years, is it such a stretch to imagine that we could be downgraded from Aa3 to single A (one more notch)?? Please plug the 1% borrowing cost difference into your model and report back if there is still “never a benefit to paying higher taxes and holding cash reserves”.

I’d like to take a crack at showing you the errors in your one variable correlation analysis (where the only answer you and Hamilton come up with is “income per capita”), but there is not enough time and that is a story for a different day (and smarter PhD’s). And I don’t know if we should hold some reserves, no reserves or a few reserves, but I do know that it is a more complicated analysis than the Advisory board would have us all believe. What I do know is that the Advisory board is making a mistake hanging it’s collective hat on a (spurious) one variable correlation analysis, a theoretical exercise derived from data on 103 towns and cities that are NOT Southborough, when we have concrete evidence from Moody’s that is SPECIFIC to Southborough and is very recent and indicates that our town is in real danger of credit downgrades. Your focus on the correlation analysis is like saying “being attacked by a bear is highly correlated with walking in the woods”, when in fact we already know a big ugly bear is standing right here in front us in the town of Southborough. When a big bear is growling right in front of you, why do you need to rely on a statistical analysis to see if you are in trouble?

John Butler
13 years ago
Reply to  James Bond

I will take your questions paragraph by paragraph.

Regarding your shouted challenge, “NEVER” The answer: In no economic circumstances of the last 60 years would they have benefited. This makes it impossible for Advisory to recommend that voters cast their ballot another way.

Paragraph two: “show me where I am wrong.” Answer: You can’t do time value of money calculations that way. Calculate the annual amortization cost (PMT function in excel) for $49 million at 4.5% and 4.25% and you will find that the annual payment difference is $82,000. Your answer would be closer, but still wrong, if the question were how much interest would the Town have to be paying. The question is how much would the Town have to borrow to make it worthwhile. The answer is $49 million, about 2.5 times all the currently outstanding debt, net of state reimbursement.

Regarding your claim in paragraph three that our ¼ point gain for increasing reserves by $1 million is too low, the natural thing to do to calibrate a range is to look at the MA towns in the Department of Revenue database. We might suppose that if we look at Towns that have the same or higher per capita income but much lower cash reserves, we might be able to estimate how low we might go down if we approximated their reserves. Unfortunately for your point of view the only actual examples that have lower cash reserves have higher bond ratings. No town that is near our income level is a full grade level down, as you suppose might be our fate. But, lets suppose that, contra these facts, I grant you your grade penalty supposition, that we went down as full grade, making us a complete anomaly among MA communities for Towns with our income level. In that strikingly unusual case our bond rate on new issues would, today, lose 0.54%, not the 1% you assert. (You can check today’s yields on or I will be happy to post the table if you doubt me.) If you run the same analysis of the amount needed to be borrowed, we would need to borrow $23 million, immediately, to make this worthwhile. This is more than doubling all of the existing Town debt. It’s not happening. Do you see why we cannot make the numbers come out the way you seem to want? Even if we make our Town a glaring exception to the norm, to satisfy your fear of downgrading, it still doesn’t work. This set of assumptions above has no support in the data, but doesn’t save taxpayers money.

As for Moody’s and the statistical analysis, Advisory cannot simply uncritically swallow the point of view of an organization trying to sell us credit services when we need to recommend taxation. All vendor claims need reference checks and that is how we use the experience of the 104 other Towns. We want to know their real-world behavior; not what they say, but what they actually do. The answer comes back that taxation for this purpose doesn’t deliver the claimed benefits. You cast aspersions on this analysis but I can tell you that there is one very strong signal in the data: whatever their talk, only per capita income actually counts in the real world.

Advisory’s only point is an inconvenient fact. You can’t save yourself money by voting higher taxes to put your money into a Town bank account. It just doesn’t work. If it did, I’d be the first to recommend it. You can choose to leave extra money with the Town. I won’t mind. But Advisory can’t responsibly urge you to do so.

Lastly I dislike having conversations with anonymous people. If you reply, you have nothing to fear by stepping out from your shadows. I am here and you know who I am. I ask for the same stand up courtesy.

James Bond
13 years ago
Reply to  John Butler

You appear to have your mind firmly made up about all of this as evidenced by your frequent use of words like “impossible”, “never”, “not in the last 60 years”, etc., so I am hesitant to spend any more time trying to bring another viewpoint. Maybe your hard-headedness is a result of being around so many PhD’s and Harvard MBA’s. Nevertheless, I think this is an important topic for the town, so here goes.

1. Fine, use the PMT function in Excel, but don’t assume these are annual payments, they are semi-annual interest payments so make sure you use 40 for # payments, not 20. I’m surprised that one got through the Harvard MBA’s.
2. Don’t use the 0.54% interest rate difference based on today’s rates (stop fixating on ONE data point just like in the correlation analysis). Yesterday it was 0.74% and last month 0.93%. Who cares? Do a smart analysis and look at the average and median difference between AA and A bond rates over the last 3 years and use those numbers (0.98%and 1.06% respectively). While you’re at it, run your numbers at the max spread during that time period (1.44%).
3. You will see that using your own methodology (after correcting for errors), the town would have to issue only $12.8 million in bonds at a 1% higher borrowing cost to make it worthwhile to try and prevent a couple of downgrades to single A. $12.8 million is a far cry from the $49.8 million you keep throwing around and the town could very easily issue that many bonds within the next five years. If you use a 1.40% rate difference (and it has been that high in the last 3 years), the town would need to issue only about $9 million in bonds to make it worthwhile. Note that I do not use the words “never” or “impossible” as I try and analyze how this could impact our town.
4. As a final adjustment to your model, don’t assume the town funds $1.5 million into the reserve fund right off the bat. Why would we decide to do that in such tough economic times? Instead, phase in the re-building of the reserve fund over the first 3 years at $500K per year. Make it as easy as possible on town residents. Moreover, this approach works just fine for the rating agencies, what they are looking for is prudent financial management, responsible town oversight, and some planning that we stick to. If you phase in the reserve build-up, the math in your model makes the breakeven bond issuance that much lower, less than $10 million in bonds at a 1% assumed interest rate saving. Again, a far cry from the $49.8 million you use as the basis for your “the town will never benefit” conclusion. You can do all of this in Excel.

I’m not going to spend time trying to convince you that there is a very real chance that Southborough’s credit rating gets downgraded two notches in the next 2 or 3 years because you will not listen. Though you will not listen, perhaps you will read Moodys latest report on our most recent bond issue from February and take a good hard look at their concerns about Southborough– and don’t ignore Southborough’s new designation on negative credit watch.

John, you need to be prepared to face the town on the day in 2011 when Moody’s takes the next step in the negative credit watch cycle and downgrades us to Aa3. That is one year away and we will then be only one notch from single A (and the potentially painfully higher borrowing costs outlined above). You have no idea what the economy will be like at that time or what kind of financial shape our town will be in, but you are willing to gamble that we will be just fine and that we won’t be facing another potential downgrade that could really jeopardize the financial stability of this town. Your sole basis for this gamble appears to be that we have an income profile that is quite similar to other towns that are maintaining higher credit ratings and Moody’s wouldn’t dare downgrade us based on your analysis. Why should we care about those other towns and all of that historical data?? We, Southborough, have been warned that our credit profile is deteriorating, we have been told the specific reasons for that warning, and we have been told what the repercussions could be for us (a rating downgrade). That tangible message is far more important than your correlation analysis.

I’m not sure I can help you much further but I certainly encourage you to keep an open mind about how to handle this challenging situation. There can be a variety of approaches and cementing yourself to a single statistical analysis is not very helpful. As for your comment about my posting anonymously, please feel free to refer to me as Bond…James Bond.

John Butler
13 years ago
Reply to  James Bond

I am not going to engage on these details further, with my name in public with someone who is afraid to appear plainly. This morning, you didn’t know how to calculate a bond payment. “Show me where I’m wrong” you said. I did that, and now now you’re trying to flash expertise, while staying hidden in the shadows.

Let the public note the contrast, I serve in public, and my name is on what I do. You can meet and discuss it with us anytime. We’re not hiding. We’ve published this material repeatedly over five years with the most probable assumptions.

Although I would change it immediately if you pointed out an error, your assumptions are selectively imbalanced to try to make your case. I refuse to do that.

Making the most reasonable assumptions, we cannot tell people they will save money by raising their taxes to leave extra money in Town accounts.

It would be wonderful if what you wish for were true. Of course we would recommend that. Advisory’s job would be so much easier. The Town could have plenty of money, and people could save money at the same time. Wouldn’t that be great! It’s just not the world as we find it.

Frankly, I would be much more comfortable if people faced these facts, then argued honestly for higher Town balances. It would go something like this. “Sure its going to cost you the taxpayer some extra money, that you can’t recoup, but it is it can be hard to raise taxes during tough times. Town services might be less likely to be cut next year, if you are willing to pay a little more this year. So use Stabilization funds for services you need now, but not to reduce your taxes for this year.” I’m very sympathetic with that point of view. It is truthful, but it is hard for Advisory to officially recommend this voter generosity. This makes it a personal choice for the voter. It is an appeal to public spirit on an honest basis. It is worthwhile for everyone to consider.

William Ohnee
13 years ago
Reply to  John Butler

I may not agree with James Bond’s style but his post did pique my interest about this topic. I read the Advisory committee’s report. I plan on attending and participating in tonight’s town meeting and it would be very helpful if John Butler could answer a few questions before the meeting.

— John, using your model and assuming the town has to pay 1% higher borrowing cost, holding the other assumptions the same, how many bonds would the town have to sell to recapture the $82,500 calculated cost to hold money in reserve?
— again, using 1% higher borrowing cost but assuming the town only holds $1 million in reserve (instead of $1.5 million), what is the breakeven number of bonds the town would have to sell?
— using the average cost difference between AA and A ratings for the last 3 years does not sound like a bad way to look at the analysis. John, what is the basis for the 0.25% assumed cost difference you use? What data supports that number?

Thank you very much for your help John, I know the Advisory board is a volunteer position and I want to thank you for your hard work on this topic.

William Ohnee

Pat Quill
13 years ago

Dear Advisory Board,

I first must say thank you for your time last night in debating with me an issue
that you have obviously discussed many times for many years. I do appreciate you
discussing this issue long after your meeting had adjourned. You were all very
accommodating and willing to rehash this issue and I think we had a healthy, focused and
polite back and forth.

I would like to finalize my thoughts and what I think is now left on the table for people to
view for themselves come next week. As last night was my first time “confronting” the Advisory Board about a contentious issue in a small, but public forum… I perhaps didn’t get all my thoughts out eloquently and even thought of great come backs on the car ride home and at 12:30am while in bed.

All that being said, here is how I will wrap it up.

Essentially, I respectfully disagree. From what I could gleam from John and Al’s anwers to my questions it comes down to Moody’s vs. Advisory and here is why. Advisory believes Moody’s rating methodology is essentially flawed (for whatever reasons, that is a discussion for the SEC and the financial community). They believe that Moody’s reasons for a town being put on “outlook: negative” are basically just fluff and that is has no merit and Moody’s will say what they want for the sake of selling a bond. However, how is it advantitious for Moody’s to downgrade a town to a potential investor for the bond? I would think it would always be in their best interest to give high ratings to a town.

I believe whether the system is flawed or not is actually not the point. It is still the system in place and the information that they pass along to investors looking to buy that bond, the system used to report to investors a town’s financial credibility to make good on it’s debt.

We discussed several times the validity of the position paper put out by John and I still
feel it is flawed as it takes only 2 data points and compares them at only several historical
points for dozens of towns in the state. It is not specific to Southborough.
The points are used in isolation. Let me liken it to this example: Isn’t this like a medical group, for instance, saying that after studying lung cancer and smoking they have found the two are highly correlated so that as long as you don’t smoke you will not get lung cancer. When you go to your doctor, he tells you “well, Pat I know you don’t smoke but you are overweight (I know this isn’t true but lets just use it for arguements sake) and that can put you at risk for lung cancer. But I just say, “but I don’t smoke and this report here says smoking is highly correlated with lung cancer…I don’t need to worry about being over weight”. The doc is trying to point out that with my health, I need to take into consideration many factors when trying to stay healthy. I cannot just assume that as long as I don’t smoke I will not get lung cancer. I need to, according to my doctor, be aware of other contributing factors that although are not as big a threat to my health, still need to be taken into consideration.

We are privy to a report from Moody’s from a recent bond issued 2/2010 for Southboro (not
20 towns across MA, but for Southboro), that spells out the specific reasons for being put on negative outlook. Here are some of them… “reflects a strained reserve position and diminished financial flexibility after multiple years of draws on available reserves for operating and capital”, “Southborough is currently out of compliance with it’s reserve policy which requires a minimum of 5% expenditures maintained in the stabilization fund”, and “a plan to restore compliance has not been developed”. Most importantly this statement…………. “adequate reserve levels and reasonable flexibility in the medium term will be critical to maintaining long-term credit strength”. To me, those are some very serious statements made by the very firm that determines our credit rating. It doesn’t get any clearer than that.

In the end, it seems to come down to two schools of thought ….. whether you feel the
rating methodology is a crock or not. Depending on who you talk with,….Advisory, financial
people, the treasurers office, people have different opinions about how valid these reports are from Moody’s or any rating agency for that matter. It is my feeling that whether you put stock into Moody’s rating methodology or not, that is the official document used in this country and put on the desks of potential buyers of our bonds. You make the call.

John Butler
13 years ago
Reply to  Pat Quill

Thank you so much for your careful attention to this. So few people are willing to look carefully at these questions. We have found that the force of the case is at first hard for people to believe. Every one of us has come down the path you are on.

It is not us vs. Moody’s. Even if we take Moody’s at their word, rather than at what the data shows, Moody’s does not make the claim that taxpayers can save money by leaving their money in Town accounts. That requires a critical second step that consumers, whose cost of money averages 8-10%, can save money by leaving with a Town whose cost of money is 4%. It turns out that it just doesn’t work. In the response to the anonymous James Bond, I have pushed that pretty far to satisfy his fears, allowing assumptions that would make Southborough the worst rated Town with its income level, completely out of range with all others, and still the numbers say that you can’t save money by paying higher taxes into Town bank accounts.

As I said last night, if you have a generous disposition and want to pay higher taxes to lessen the likelihood of service cuts next year, I have no problem with that. I have some of those feelings myself. It is just that Advisory can only say, you are economically better off to tax yourself only when such taxes are needed for actual services.

We’ve been working on this for years, so it is a pleasure to have a thoughtful, and not anonymous, person paying attention. Thanks and thanks for attending last night.

Pat Quill
13 years ago
Reply to  John Butler

Thanks for your post John. What about from this point of view…….. hasn’t it
been nice to have a stabilization fund to dip into this year? I know you are not
suggesting we have a zero balance cash reserve in the future and you do, in fact, suggest
having $400K in cash reserves going forward. But, we have needed almost $500K this year to “save” the budget. If we only keep $400K each year, we certainly could not draw $500K in the future. We know we currently have an unsustainable budget model and most likely will for some time ahead.

Aren’t we just kicking the can down the road?

Al Hamilton
13 years ago
Reply to  Pat Quill


Yes, we are kicking the can down the road. We are taking taxes that people have already paid and using this money for a public purpose. At some point, probably next year we will have to ask the taxpayers for more money because the Stabilization money will not be there. It is possible that the Telecoms money will be available to fill the gap for the next 2 years or so but in the end we will have to ask the taxpayers for a 2.5 override.

If we can access the telecoms money in meaningful quantities I am in favor of trying to reach FY 2014 (3 more years) before we ask for a 2.5 override. At that point a significant amount of our Algonquin debt will come off the books and create head room for an override that minimizes actual tax increases.

Pat Quill
13 years ago
Reply to  Al Hamilton

Thank you Al. Sounds reasonable to me. For the record, I am not suggesting
that we tax people now, during these tough times, just to keep the cash reserves
at an agreeable level. It is what it is and now is not the time to replenish it.
But, my question would have been, does the town have a plan to replenish it when
there are extra revenues (sounds hard to believe now, doesn’t it). You have already
answered that above.

I don’t ever think it is in Advisory’s best interest to suggest to people that we pay
higher taxes to keep the reserves up, only to set monies aside when there is excess,
to be there for times such as these. As I said earlier, hasn’t it been awfully nice to be able
to dip into that this year? (at least at the suggestion of Advisory). Incrementally replenishing perhpaps, but at least a plan in place.The other issue of course, is how much and I know there are different viewpoints on this as well. In the future, if that discussion comes up, I hope you’ll still be around to blog with me all day! Many are sorry to hear you are leaving Advisory, including myself.

By the way, I will shoot the document that I refer to in earlier posts over to John and
Claire, per your suggestion.


Thanks again for your time Al. By the way, I will forward that document over to

Al Hamilton
13 years ago
Reply to  Pat Quill


I want to echo Johns appreciation of your interest in this arcane matter.

1. The report you refer to (if you send a copy to John or Claire Reynolds I am sure they will post it on the Advisory web page) states “Southborough is currently out of compliance with it’s reserve policy which requires a minimum of 5% expenditures maintained in the stabilization fund” I participated in town life for the last 10 or so years and have never seen this policy. It may be but I doubt that it was ever authorized by Town Meeting. Such a policy, if it is to mean anything more than empty words would need to be authorized by Town Meeting or at a bear minimum the Board of Selectmen. Otherwise it is just the musings of an anonymous bureaucrat bloviating perceived wisdom. So, did an elected board or Town Meeting authorize this so called policy? I doubt it but I encourage you to ask.

2. Adequate Reserve Levels – If 5% is the magic number then that would imply that we need a little over 2.0 million dollars in financial reserves. Each year we typically generate about 1.5 million in “Free Cash”. We also have $2.3 million in sitting in the Overlay Reserve Fund to cover potential refunds that we might have to make for a portion of the Telecoms Suit. The suit has been sufficiently resolved that we are no longer reserving funds just holding on to the funds until we settle up. So, not even mentioning Stabilization at $400,000 and the traditional Overlay Reserve of 300k or so we are well above the magic 5%.

3. If on your next National Grid Electric bill they decided that, because they wanted to build their cash reserves, they were going to charge you for an additional month’s worth of electricity, even though you never used it, would you consider yourself fairly dealt with? Oh, and by the way if you don’t pay we will shut off your power! The monies we are talking about are compelled from residents, they don’t have a free choice in the matter. We will take them whether they like it or not. There are differences of opinion on this but I feel that if we are going to force people to pay (that is what a tax is) then the standard of need and use should be significantly higher than a free market transaction. I for one do not find the stabilization argument sufficiently compelling to take money from a retiree living on a fixed income. If it fails that test then it is bad policy in my book regardless of the statistical analysis and financial analysis.

Neil Rossen
13 years ago

I’m afraid that the naysayers about using the reserve NOW are unfamiliar with the basic proposition that it is ridiculous to essentially lend money to the town at a trivial interest rate when the voters can use tthe money themselves. The issue of the present value of money also seems to elude. It is exactly the same, as John suggests, as lending money to the utility.

The idea of a bond rating reduction is equallly preposterous. Bond holders are concerned about the capacity of a town to pay it off. Our demographics ensure a high credit rating.

Neil Rossen
13 years ago


The idea that “It is an appeal to public spirit on an honest basis” is really a bit simplistic. The appeal is irrational as it makes no economic sense at all. Only those who can be bamboozled by specious arguments would respond positively to it.

The clarity of your postings is commendable.

13 years ago

Post #16–from Al is succinct in demonstrating where we stand in terms of our financial layout in a way that everyone can understand. Could be a bumper sticker of sorts or at the minimum a way to get the townspeople to understand the full picture: Yes, as a town Southborough still demonstrates an above average per capita income but having a heavy debt load to carry for many more years is a recipe for demise if not managed properly.

Pat Quill
13 years ago

Thanks for your post Carrie. I agree with your point and also agree that Al has been a great resource for the town looking at this situation.

My point all along has been that it is not just about stabilization fund or cash reserves but the whole picture. Cash reserves are just one piece and the rest of our financial picture isn’t looking as healthy as evidenced by the fact that I have heard so many times “we have an unsustainable budget” and will for some years to come. Other towns with with no stabilization fund DO have a great credit rating (and high per capita income), HOWEVER, they also have been managing their budgets conservatively for years, show a trend of stable revenues and over the past decade show basically balanced budgets. We are not.

I say again….. I do not believe that stabilization fund and bond ratings are DIRECTLY related. I know that you can have $0 in your cash reserves and have the highest bond rating of Aaa (as evidenced by Weston and Dover) but they also show trends of maintaining a balanced budget. So balanced, that they may never NEED cash reserves. THATS the point. Southboro could be adding a depleted stabilization fund to OTHER negative trends……..a strapped budget, decreased revenues, lower annual cash reserves, etc. A high per capita income isn’t the only criteria for bond investors or rating agencies, though it is important as shown by the research of the Advisory committee. I’m mostly concerned about what could occur in the near future if the economy remains weak and the town suffers. As I said, I share your concerns about debt and unbalanced budgets going forward.

Al Hamilton
13 years ago
Reply to  Pat Quill

In some respect our budgets are always balanced. The monies we spend are provided by the taxpayers it is just that the money may not have been provided in the same period as the expense. Take for example the 2.3 million “Telecoms” money sitting in the Overlay Reserve. All of the taxpayers in town over the last decade had to pay $2.3 million more in taxes than they otherwise would have if the matter was resolved (about $600 per household). So, while we were sending down the Stabilzation fund from about 2.9 million to 900k ($2.0 million) we were increasing the overaly reserve account by $2.3 million. At some point a portion of this money will be released. In a fair world the people that overpaid would get a refund. This is not a fair world and the town will spend it.

If we is the released telecoms money to fund the operating budget then for the years in question the budget will be out of balance but if you look over a longer period of time the budget is balanced. The same argument can be made for the Stabilization fund albeit over a longer time frame.

At some point, my guess is between 2011 and 2014. We will be faced with a choice:

1. Maintain the level of services in town by a very substantial productivity and management improvements. This is a very achievable goal but quite unlikely.

2. Maintain the current rate of tax increase by a very substantial reduction in services which will necessitate layoffs at the schools and municipal departments.

3. Maintain the level of services in town by a substantial tax increase. My own best guess is that sometime in the next 3 years we will face a Prop 2.5 override that will add 2-4% to your your property tax bills in addition to the built in levy increase of about 3% for a total of 5-7% and 4-5% thereafter with regular overrides.

My own belief is that for the next 2 years the job market will remain weak and that raising taxes in this period would be a cruel act that would burden many in our community (In March just under 9% of our property tax accounts were delinquent).

Make no mistake about it the day is coming, sometime in the next 3 years, when we will have to ask citizens if they want to continue to have these services and are prepared to substantially raise taxes to support them. There is no guarantee that they will say yes.

I, for one, have no problem taking the tax monies that people have already paid and using them for the purposes we told tax payers we were taking them for.

For those who want to increase the stabilization fund, author a warrant article for money to go to stabilization (it only takes 10 signatures for the Annual Town Meeting but it is too late for this year). I would be happy to help you with the wording and process even though you can guess how I will vote. Let Town Meeting debate and decide. Reasonable people may disagree.

Pat Quill
13 years ago

Gosh darnet Al, I do not want to increase the stabilization fund at this time. Nor am
I saying we need to increase it at any time! If we had a sustainable budget that we
added to the pot of our high per capita income we may never need one!

I also have no problem “taking the tax monies that people have already paid and using them for the purposes we told tax payers we were taking them for” only as long as everyone is
aware that we may be rolling the dice here hoping that with every other part of our
buget and economic picture under stress (not just this one year, but we are showing a trend) and a depleted stabilization fund we risk being downgraded in our
credit rating. Poor management of our budget, unchecked union contracts, decreased
revenues, etc, etc. are all starting to paint an ugly picture for this town. We may have
no choice but to use the stabilization fund this year… good, thank goodness we at least
have that option with our current fiscal issues. BUT, if this town cannot manage it’s budget
going foward, then it damn well better have a stabilization fund to be able to tap into. People should be outraged that we are even in this position…. it didn’t happen overnight but with
years of mismanagement and no one willing to be conservative enough, tough enough or
perhaps no one with any foresight. I would LOVE to be one of those towns that
doesn’t have a stabilization fund………….than we would never have to have this debate.
We would have a strong balanced budget…. the end.

Al Hamilton
13 years ago
Reply to  Pat Quill


It sounds like we are in violent agreement.

Pat Quill
13 years ago

sorry, I meant…. “gosh darn it!” . I type too fast.

Neil Rossen
13 years ago

When you have to listen to the please for school funding below from the WSJ may apply:

Fewer Students, More Teachers
Even as enrollment falls, school districts keep hiring..Governor David Paterson wants to reduce state aid to local school districts next year by 5% to address the state’s $9.2 billion budget deficit, and state educators are complaining that the cuts could result in teacher layoffs. Maybe so, but the reality in New York and other states is that teacher hires in recent years have far outpaced student enrollment.

A new report from the Empire Center for New York State Policy found that New York public schools added 15,000 teachers between 2000 and 2009, even though enrollment fell by 121,000 students over the same period. New York City, home to the nation’s largest school system, added 7,000 teachers and 4,000 nonteaching professionals (guidance counselors, administrators, nurses) even as its enrollment was decreasing by 63,000 kids, according to state data.

Teachers unions prefer fewer students per class because it means more dues-paying jobs, but the evidence that it improves academic outcomes is thin. In any case, the Empire Center report found that “by national standards, class sizes in New York were small even before the further staff expansion of the past nine years.” In 2008 New York’s pupil-teacher ratio was 13.1, the eighth lowest among the 50 states, and its per-pupil spending ($16,000) leads the nation.

This disconnect between student enrollment and the number of teachers hired is growing nationwide. Between 2001 and 2007, 12 states saw student enrollment fall while teaching staffs grew, according to data from the Census Bureau and the National Center for Education Statistics. And in another half-dozen states, teachers were hired out of all proportion to increased enrollment.

For example, Virginia’s student enrollment grew by 5% and the number of teachers grew by 21%. In Florida, student enrollment rose by 6% and the number of teachers rose by 20%. Student enrollment was up by 9% in North Carolina, where the number of teachers was up by 22%.

“There ought to be some relationship between hiring personnel and the needs of students,” says Mike Antonucci of the Education Intelligence Agency, a research organization. “At what point do we say that we’re hiring too many teachers for the number of students that we have?”

When hires are determined by the money available instead of the staff needed, school districts become bloated in the good times. Yet when tax revenue falls in a recession, union pressure makes it next to impossible to cut teacher rolls. States raise taxes instead of re-examining enrollment and student needs, which creates a hiring ratchet that leaves states with an ever higher number of teachers, regardless of enrollment.

The good news is that a few state officials are starting to push back. In addition to New York’s Governor Paterson, New Jersey Governor Chris Christie is trying to reduce state aid to local school districts. In the past decade, student enrollment in the Garden State has grown by 3%, while total school hiring is up 14%. Instead of addressing this reality, a local chapter of the New Jersey Education Association responded to Mr. Christie’s proposals by circulating a memo joking that it wishes the Governor were dead. Mr. Christie must be doing something right.

Pat Quill
13 years ago

FYI, the Moody’s report that I have been referring to is now posted on the
Advisory Board’s website. The link to the site is below and the report shows
up under miscellaneous files. It is worth taking a look at.

Thanks for posting the report Al and Claire.

The Natural Truth
13 years ago

No! Enough is enough with rainy day funds and raising taxes. The same people who want to raise taxes and tap in to funds are the same people who wont allow development of Route 9 from Walgreens (after years of begging the Town) to 495. Its a joke. Allowing businesses on Route 9 will bring people from surrounding towns to spend money here, which increases TAX REVENUE. In addition, what about down town, enough already. Mauro’s has got to go. The store is ready to fall over. Time to bring in some new blood to run this town.

Matthew Brownell
13 years ago

It is profoundly disappointing that some Southborough residents and Planning Board members have fallen into character roles as drunks – using the nearest lamppost (raiding the Stabilization Fund) for support.

The purpose of the Stabilization Fund is to provide an emergency reserve for unexpected expenses. It is not designed as a tourniquet or Bondo patch to offset operating expenses.

What portion of the latest Moody’s report do you not understand?
“Southborough is currently out of compliance with its reserve policy, which requires a minimum of 5% of expenditures maintained in the stabilization
fund. Currently the town has roughly 2.5% of expenditures in stabilization and a plan to restore compliance has not been developed”

In government, as well as with most other facets of life, someone needs to be the adult. And to those in the Progressive “Spend-it-Now, Live-for-Today” crowd, I would strongly suggest to you that the era of Cheap Money is over.

No correlation- causation between a town’s stabilization fund and bond rating? Utter nonsense! The only reason this has not become readily apparent- even the dimmest observer, is that we have gone through an unparalleled 20-year decline in interest rates, and extending massive liquidity to those who – quite frankly, shouldn’t be entrusted with the financial stewardship of a Skee-Ball arcade.

Al Hamilton
13 years ago

“The purpose of the Stabilization Fund is to provide an emergency reserve for unexpected expenses.”

This is not true, the town maintains a separate fund called the reserve fund that is used for unexpected expenses.

Accessing money in the stabilization fund is in fact quite difficult in an emergency. It requires a Town Meeting (~$10k per meeting and a month of notice/hearings) AND a 2/3 vote.

I have noted elsewhere that I have never seen this so called policy. I do not believe that it was ever authorized by Town Meeting and in any event is a meaningless piece of paper. The policy cannot raise the required revenue and if it cant then it is just empty words. The only body that can do so is Town Meeting and the voters.

If you really believe that we should restore the Stabilization fund to the 5% level then I suggest that before the next ATM you find 9 like minded folks and put together a citizens petition to raise the required taxes to restore the money (about $1.1 to 1.6 million or a 3-5% tax increase). Make your case and let Town Meeting and the voters decide.

As for Moodys – These are the same guys that said AIG and Lehman were rock solid, B of A and Citi were the bedrock of our economy and those Credit Default Swaps were the best things since buttered toast. I think their statements should be viewed with skepticism. I encourage you to read the position paper as well. You might disagree but when the words and data diverge, I follow the data and the data does not support the contention that reserves are a factor.

Finally there is the issue of fairness. I for one have no problem telling an 80 year old widow living on a fixed income that she must pay for schools or roads or rec or the library. But I can’t get behind the idea that she should take $500 out of her bank account and put it in the Towns bank account because the Town knows better what to do with the money than she does. Maybe you can.

Now if you wanted to really do away with some of the manifest waste that goes on and use that money to restore the Stabilization fund I might just support you.

Tom Ford
13 years ago
Reply to  Al Hamilton

You consistently show questionable logic on this message board. You indicate that you have no problem telling an 80 year old widow that you know better than her regarding paying for schools or roads or rec, etc., but then you go on to say that you do not know better than her when it comes to putting some additional money into a reserve that could in fact be used some day for schools or roads or rec., etc. The people of this town are smart enough to know what a reserve is, that it is funded and held without any immediate identification for it’s uses, and that it is still the town’s money (and thus indirectly theirs) if not used. Your examples are misleading.

And the Advisory committee drawing a single, major conclusion from an analysis that shows fallacious reasoning will hopefully be discussed in the clear light of Trottier this evening.

Fallacy of accident: a generalization that disregards exceptions.

Example: Cutting people is a crime. Surgeons cut people. Therefore surgeons are criminals.

Advisory Committee: Per capita income determines the town’s credit rating. Southborough has high per capita income. Therefore nothing else (e.g. stabilization fund) has any bearing on credit rating.

As for Moody’s, though you may not like their performance on all of the ratings they’ve provided in the past, the fact of the matter is that municipal bond investors still rely heavily on their research and ratings (especially on small bond offerings like Southborough issues). My guess, based on comments from your prior posts, is that you will argue that no one listens to Moody’s but that will be misleading too.

Matthew Brownell
13 years ago
Reply to  Tom Ford

Mr Ford –

Excellent, if not brilliant post.

How can we adopt you as CEO of our Town Planning and Advisory Committee?

Neil Rossen
13 years ago

The comment by M. Brownell is insulting and ill-informed. If he takes the trouble to READ the detailed reasoning available on the Advisory Boad site on NEXO, he would understand that failure to use these funds is economically irrational. Not using them may make some feel warmer, but it is akin to money stuffed in a mattress.
I urge all to read the research and report at
Of course this information was available in the Advisory Committee Report to Town Meeting last night, but again it does require the challenge of reading. Voting would be quite different if all accepted that challenge.

Matthew Brownell
13 years ago
Reply to  Neil Rossen

My comments are insulting and ill-informed?

I don’t think so, Mr. Rossen. You are, however, entitled to your opinion.

Many of my acquaintances work in municipal bond underwriting agencies and brokerages (Loomis Sayles, Eaton Vance, Franklin, D&B) and I can unequivocally assure you that the practice of raiding stabilization funds is an immediate red flag for credit rating evaluation, lower credit ratings, and higher interest carrying costs.

Of course, this is immaterial to the Socialist “Progressives”, who have proven their willingness to print staggering amounts of U.S. currency, re-distribute tax revenues from from wage earners to Professional Victims, foist increasing and impossible debt loads onto our children, and create a perpetual hegemony of irresponsible, government dependency .

Spending reserve tax money is the easiest thing on earth, Neil. It takes no stewardship, no accountability, and certainly no “Advisory” input , contrary to the ironic and unfortunate name of the Southborough ‘ local board that advocates this Las Vegas style craps game.

Instead of arrogantly painting fiscally conservative Southborough residents as “bamboozled” , “ill-informed”, “irrational”, or as mattress-stuffers, I suggest you work with Selectmen in 2010/2011 to to replenish the Stabilization fund to 5%, while, at the same time, assist with the REAL work and heavy lifting of reducing expenses and increasing revenues.

Based on last night’s Town Meeting vote (which I’m guessing was probably taken around 11:15pm, after many of Southborough’s family heads and wage earners have gone to bed) we evidently took the easy, slacker’s avenue to a quick fix and replenishment of the punch bowl by raiding the town savings account. Completely unfortunate.

Of course, you don’t need to take my word for it, as you’ll be able see the results within the next 3 – 24 months as additional municipal credit rating agencies lower Southborough’s bond rating.

Al Hamilton
13 years ago

Mr. Bromwell:

I, for one am a fiscal conservative. Not in the loony Palin sense but a real conservative. I believe in limited government and limited taxation, and you will find me arguing against many of the spending proposals that are regularly pass muster at Town Meeting. Part of my belief structure is that we should only tax people for things that we can identify.

If as you contend financial reserves really matter in bond ratings why doesn’t the pattern show up in the data? Do some homework and show us a fairly developed, relevant data set that shows a pattern and then we can argue about the benefits. If you can prove a quantifiable relationship then we can calculate the partial derivative of reserves with respect to rating and put a dollar value on what an additional million dollars in financial reserves is worth in terms of credit costs. Advisory tried to find that relationship and was very surprised to find it could not find it.

As for passing at 11:15, it is clear by your comments you did not attend. The article in question came up about 9:00. I was in bed by 10:45. I work for a living and the late nights are not particularly convenient, I would prefer a Saturday meeting but Town Meeting nixed that so I go on Monday and Tuesday once a year. Going is your duty and I did mine. Did you do yours?

Pat Quill
13 years ago


Pat Quill
13 years ago

If anyone does takes the time to read the report you refer to, they will see that it contains a number of serious limitations. First, how can Advisory put out a position paper stating “The only thing that actually drives bond rating is the average per capita income of the community” when the stats used for per capita income are based on data from 1999 yet the rest of the data (reserve amounts, home values, # of people in town) are all from 2008/2009? Current income per capita data might be similar, but we just don’t know and the report uses data that is 11 years old.

Second, again from the report’s quote shown above, how can Advisory conclude this when they have not even looked at and ruled out all other factors? or how about doing a mulitple factor study and ruling that out as well? Moody’s clearly lays out their criteria for ratings and make no mistake it is based on multiple factors– why are we fixated on only one? How is this a valid study?

My issue with this study is it is misleading and oversimplified and should not be used
as the poster child for why we should or should not dip into stabilization.
A town’s budget, budget trends, management policies and philosophies, per capita income,
etc.(just a few of Moody’s factors), paint a complicated picture. Please do not use this single statistical relationship as the sole basis for your argument.

John Butler
13 years ago
Reply to  Pat Quill


As the principal author, let me attempt to answer some of your questions.

Regarding your first paragraph, the income data from the last census is the data currently used by the State Department of Revenue for all its state aid, and other calculations, and is the data presented in its own financial status report that includes the bond rating information. Perhaps some newer and equally reliable data exists, but comparative income levels between communities is a fairly stable statistic and I wouldn’t expect newer income data to change the conclusion.

Your statement that “we have not even looked at all other factors” is simply not true. The charts in the paper show that we looked carefully at cash reserves, for example. Frankly, I tried to find any other worthwhile correlation from all the data provided by DOR, which is quite voluminous.

Although we found no other statistically significant correlation, it is worth noting that the standard for spending is actually much higher than that. We only ask taxpayers to spend money when they can be quite certain they will get something for the money they spend. Even if we found a slight but statistically significant correlation, which we didn’t, that would not be enough to say “You should spend your money on this.”

Moody’s says that their number one issue is economic factors, such as income levels. Their number two factor includes things like cash reserves. What the study tried to determine is “Is the number two factor big enough, overall, to show up in the real world results in a way that would be worthwhile for the analysis to proceed to the second question of ‘is it worth buying.” The answer coming back from the data is that whatever weight Moody’s gives to their second factor, which may be something, it doesn’t show up in the real world. Nevertheless, for completeness we did analyze the question of “What if it did show up.” and found that, even if it was important, taxpayers cannot save money by putting their money into a Town account hoping to recoup it by lower bond ratings.

I disagree that the report is misleading. We wish we could tell taxpayers that they would be better off to leave high balances in Town accounts. The report is as fair as we know how to make it. The conclusions that it draws are robust and could be stated far more strongly than they are with complete justification. For example, the argument for higher cash reserves for higher bond ratings is an argument for permanent high balances, for amounts that should never be drawn down, so as to keep the bond rating high. If that is taken seriously then the the amount given up by the taxpayers is not the mere difference in the time value of money, as we calculated it in the report, but the value of the unused principal as well. If we suppose that the voters need a five year payback on their permanent investment of $1.5 million in higher reserves, then the amount needed to be borrowed to make it worthwhile is $191 million not $49 million as stated in the report. The argument for saving money for taxpayers through higher cash reserves is quite hopeless, unfortunately, and we do not overstate the case. If anything the report understates it.

As for being oversimplified, there are more technical details that were part of our analysis that were not included in its ten pages, but, critically, there was nothing in any details that tended in any other direction than its conclusions. It was hard to write about this complex subject in a way that was as fair as we could make it, but also accurate and accessible. The very small number of actual readers shows that we did not succeed in making it as simple as we should have. To your credit Pat you are the only person I know of who wants a more technical report, however, let me assure you that there is nothing we have simplified that would yield a different result.

John Butler

William Ohnee
13 years ago
Reply to  John Butler

John, I know the meeting was yesterday and I see your response to Pat Quill’s post above. Can you please take a look at your model and provide answers for the questions in my post #26 above? I am reading all of these posts and it would be very helpful to me if you could calculate the impact to the town under slightly more draconian future circumstances, not a best case scenario or a worst case scenario, just a scenario based on a specific set of assumptions. Although you may not believe the town will find itself rated single A with an assumed cost to borrow that is 1% higher, it is a scenario that could occur. Your assistance is greatly appreciated.

John Butler
13 years ago
Reply to  William Ohnee

I am happy to take up your questions. I’m sorry I missed them before the vote, but the last few days have been very busy.

After my last reply to the anonymous poster I did look further at the question of whether a full rating grade move, caused by town action to reduce reserves, was reasonable or not. I believe it is not reasonable. It is easiest to explain by showing the data on a graph. I have posted a pdf file to because I don’t know how to post them here. If you look at the second graph in that file you will see that a full grade rating move would create a completely unique, and worse, treatment for Southborough among 104 towns. Note that other towns at our income level already had, at the time of all this data, lower cash reserve positions than ours, but in fact, the only ones that did have lower cash positions had higher bond ratings. So the supposition this cash reserve change would cause a drop in our position outside the cluster is completely unjustified by the facts. Note that I am not saying that Southborough’s rating will not move by a rating level, but that if it does so it will be because all or substantially all communities are getting down-rated for reasons we cannot control. I do not find any justification for unique, worse, treatment for Southborough. This should address the first and last of your paragraphs.

The second part of your question raises the general issue of how one should do this. I try to take “middle of the road” or “most probable” approach to estimation. I assumed that the money would be recouped and used for other purposes and counted only the time value of money offsetting the annual cost of such with the presumed annual benefit of lower bond ratings. However, I would have been fully justified in taking you at your word and assuming the account deposits must be “held” permanently since the bond argument, if taken seriously, presumes permanent balances. The bond rating argument never specifies a time when the balances can be reduced and the principal recouped, as your word “held” presumes. I didn’t do this because I’m trying to see if there is any reasonable way to let us say to voters, “Give us your money and we will save you money.” However, now taking you literally that the amounts are to be “held”, and assuming the Town wants a five year return on investment in this “deposit”, the Town would have to borrow immediately about $35 million and realize or avoid a one full percentage point move to benefit.

We are, in the above paragraph, in a region of supposition that is all extremely improbable on all counts and which I could not characterize to Town meeting as an honest best estimate in any way. Only by constructing a very long chain of improbable assumptions can someone say, “Give me your money, and I’ll save you money by keeping at the Town.” The honest best conservative estimate is simply summarized in this way: “You the taxpayer cannot save money by raising your taxes to put money into a Town bank account.”

William Ohnee
13 years ago
Reply to  John Butler

Thank you for the reply John. If I understand your methodology correctly, the annual savings in interest cost on $35 million in bonds is about $235,000 (assuming 20 year bonds, 40 payments, 4.5% interest rate with no rating change, 5.5% with rating change). The town would earn 3% interest x $1,500,000 = $45,000 held in reserve, so the annual total to the town would be $45,000 + $235,000 = $280,000. Plus, for this type of analysis you would assume that the $1,500,000 is returned at the end of the fifth year. You have to assume the money is returned because if you do not include the $1,500,000 then you are assuming another 5 year rolling period where you gain 5 years of additional interest savings, and so on and so on. To exclude it would not be a fair analysis.

If I look at those annual cash flows for five years and assume the money is returned at the end of the fifth year, to get an 8.5% return for town residents (which your report assumes is the town’s borrowing cost), the town would only have to issue a little over $12 million in bonds in the first year, not $35 million. Isn’t $35 million too high? Thanks again for your help John.

I don’t know if I would characterize the assumptions as “all extremely improbable on all accounts” given the recent Moody’s negative credit watch and the chance that we might be downgraded one level fairly soon, but that is a subject for another debate.

James Bond
13 years ago
Reply to  John Butler

John Butler’s claim that Southborough would have to sell $191 million in bonds over a 5 year period to justify an increase of $1.5 million in the stabilization fund is inaccurate and misleading for town residents. Butler has a lot of fun with models and numbers but his miscalculation on this analysis should make every town resident question the accuracy of all of the numbers he puts forth in support of the Advisory committee’s positions. Anyone with a simple spreadsheet program can run the analysis as follows:

Annual increase in town stabilization fund: $500,000 initially, then $500,000 in Year 1 and $500,000 in Year 2. In Butler’s report, the entire $1.5 million is assumed to be funded all at once. Given the tough economic times, establishing a plan to build the reserves over several years and sticking to that plan will be sufficient for maintaining our credit rating. To assume a $1.5 million buildup right up front is not necessary and not smart.

Annual interest earned by the town on the reserves: 3% (Butler’s number)
Assumed town resident capital cost: 8.5% (Butler’s number)
Interest rate to issue bonds with no rating downgrade: 4.5% (Butler’s number)
Assumed interest rate on Year 1 bonds sold assuming downgrade to Aa3: 5.0% (0.5% higher)
Assumed interest rate on bonds sold in Years 2>5 assuming further downgrade to single A: 5.5% (1% higher)

Using the assumptions above, many of which are directly from Butler, the town would need to issue $3.85 million in new bonds per year over 5 years to make building up the stabilization fund worthwhile. That totals about $19 million in bonds, not $191 million. Maybe John got a decimal point in the wrong place. Nonetheless, that is a MASSIVE difference and, as indicated earlier, makes me wonder about the rest of the Advisory committee’s numbers.

There is a reasonable chance that we will have to issue $19 million in bonds over the next five years, we will pay down our existing bonds by nearly that amount over that timeframe and there is at least one big project totaling $7 million in the works. So, it could happen and it will be painful for the town if our ratings are downgraded a few notches.

Part of the idea behind rebuilding the reserve, which many town residents understand but appears to be completely lost on the Advisory committee, is that it is a conservative approach that builds a margin of safety for the town, it helps protect us from unexpected calamities (or a double dip recession), it is another brick in the wall of fiscal responsibility. Yes, painful today as we pay a little more for a few years to rebuild it, but a prudent way to manage the town’s finances. Probably a worthwhile idea on those merits alone. But, as shown by the analysis I lay out above, we would also potentially earn a reasonable return on our “investment” in the reserves and have a relatively short payback period (5 years). So it could make good economic sense too, despite all of Butler’s protestations.

Following last night’s vote to spend down more of the stabilization fund, Southborough could very well be downgraded by Moody’s to Aa3 by the time next year’s town meeting rolls around. That will mean a higher borrowing cost for the town and should make for an interesting presentation by the Advisory committee I would imagine. John Butler will not respond to this post because I post as 007, but that is fine with me. Anyone in town (including John) can run the numbers using the assumptions I describe above and you will get the same result– the town does not have to issue anywhere near $191 million in bonds to make a rebuild of the stabilization worthwhile. See you next year and good luck.

Mary Hynes
13 years ago

Dear Mr. Brownell –

You refer to Planning Board members as “drunks leaning on a lamppost?” You should be ashamed.

And how did you mistakenly decide that all of the Planning Board members agree to using Stabilization funds?

I, for one, stood up opposed to it. I also believe it is a necessary safety net. However others disagree, and the Town Meeting attendees voted — that’s our Town democratic process.

Please refrain from nasty and deceitful comments. Disgraceful.

Matthew Brownell
13 years ago
Reply to  Mary Hynes

Mr. Hamilton –

First, it’s “Brownell”

Second, all municipal bond rating agencies take into account local government raids on stabilization/ reserve funds as a key criterion in their ratings, just as consumer credit organizations factor in how many new credit cards a person establishes, whether the floating balance increases each month, and if a person suddenly changes from a long pattern of paying in full each month to carrying monthly balances.

To understand this doesn’t require an “Advisory Panel”, Senate subcommittees, Mensa grope-a-thons, legions of career government bureaucrats, or psuedo whitepapers from “Advisory” panels with the imprimatur of academic theses. It is, however, Common Sense . . common sense that I thought would have come to the forefront with last year’s near collapse of the global economy.

Ask nearly ANY financial planner about the road to financial independence and stability, and they will invariably tell you to first set up a reserve cash account to cover for 6 – 9 months of unforeseen expenses. Do you really think this wisdom is lost on bond rating agencies?

Third, I normally attend the annual town meeting. I could not this year due to business engagements. I too, work for a living, and I calculate that from January 1st until July 15th, every dollar of my income goes to federal, state. county and local governments.

Fourth, it is most mysterious and disappointing that some on this board overweigh the median income component of town residents. . . as if higher incomes provide justification for profligate spending, and a fallback for what stronger spines should do – which is to raise revenue, and cut expenses.

Al Hamilton
13 years ago

Mr Brownell:

My apologies for misspelling your name.

You and Pat Quill caused me to rethink my position on Financial Reserves and municipal bond rating. I did a little research, looking for data that might confirm or contradict the Advisory finding. I did not find the data sets I was looking for but I came across this simple article which crystallized why financial reserves should not matter for General Obligation bonds:

There are 2 basic types of “Municipal Bonds” General Obligation (the type Southborough issues) and Revenue bonds. General obligation bonds are secured by the tax base of a community and are the typical bonding method for towns and cities. Revenue bonds are secured against specific revenue and might be issued by a public hospital or authority.

The reality is that a General Obligation Bond is secured by the private (taxable) assets in a community, its tax base. When we vote for debt we are in effect saying that we will take a certain amount of money from the tax base over a certain time. There is no question about our authority and obligation to send out the tax bills, only whether the tax base will be healthy enough to support the taxes. That is why the article focuses on community wealth, economic base, economic diversity and debt load. All of these factors are trying to assess whether the tax base will support the borrowings. If the tax base is distressed then any financial reserves will likely have disappeared long before default making their current level irrelevant.

If we were talking about Revenue Bonds I would agree with you completely that financial reserves would be an important factor in assessing risk as the article confirms. But we are not talking about this class of municipal bond.

Moodys is in the business of selling rating services to Towns. I am sure that they are asked all the time “What can we do to raise our ratings”. The truth is very inconvenient (Almost nothing in the medium run) so in order to make the sale they have to say things that are true for Revenue bonds but not true for General Obligation bonds.

My suspicion is that our high debt and small size are more a factor in the downgrade than our financial reserves.

An interesting parallel is a Moodys article that tries to unify corporate and municipal ratings. The article says that almost all municipal entities would be rated Aa3 on the corporate scale. It also suggests that no rated general obligation has been defaulted on in the last 40 years.

Based on this I suspect that the Municpal A’s vs Aa’s have a much higher percentage of revenue bonds which appear to carry a higher yield. I have to do a bit more homework to confirm this.

So, in conclusion, if you want a good bond rating, invest in high quality schools which will attract people with above average incomes and be business friendly to develop a diverse commercial and industrial base.

Matthew Brownell
13 years ago
Reply to  Al Hamilton



I completely agree with you on the importance of high quality schools. It is the most important investment – with the biggest long-term “bang for the buck” for the community & taxpayer.

I also agree that SBRO’s overall debt load is more of a primary factor to downgrade risk.

Regarding your commentary on General Obligation bonds, I would re-emphasize, as you stated in your post, that most municipalities have little assurance “whether the tax base will be healthy enough to support the taxes”.

1) Another 3 – 5 years of collapse in the housing market is generally forecasted. (The Socialists and Keynesian Freaks-of-Nature refer to this inevitable outcome of irresponsible taxpayer-backed, subprime homeowner financing as a “contraction”)
2) Additional property tax assessments will be successfully contested and abated
3) Our nation’s Treasury Secretary and Federal Reserve boards are in currently involved in cloak & dagger discussions of an “exit strategy” to the Government’s remarkable and historical Spend-a-Thon for Obama’s Western European version of Camelot.. . . all while continuing to pimp U.S. currency down global strip clubs. (i.e., how soon, and by how much do we raise interest rates??)
4) You are aware that federal and state taxes will be sharply escalating during 2011 – 2015 ?? Placing yet additional strain on the dwindling supply of Middle Class wage/ payroll workers?

Whatever the near and mid term economy holds, I believe the decision to raid Southborough’s stabilization / reserve funds is completely irresponsible, parochial, and shortsighted.

Matthew Brownell
13 years ago
Reply to  Mary Hynes

My apologies to you , Ms. Hynes.

I stated “some” and not all.

The Natural Truth
13 years ago

Mr. Butler,

007 has some pretty compelling points. I think you owe it to the people you serve to respond regardless of whether its 007 posting or mickey mouse. Unless you have something to hide.

John Butler
13 years ago

I defend the anonymity rights of posters and forums, but I regard anonymity as discourteous to those of us who serve in public and not productive of sound results. Therefore, in such forums I try to limit my posting to responses to those willing to sign their real names. I would also welcome your criticisms at the public meetings at which I serve, but anonymous comments will not receive a substantive reply.

Pat Quill
13 years ago
Reply to  John Butler


I have to add my 2 cents here. Although “James Bond” has raised the bar of the
debate a little beyond my technical/financial comfort level….. I must
admit he does make some interesting points. I don’t see how his questions/posts
are not worthy of a response just because he is choosing to remain anonymous.
He is not slanderous, rude or inappropriate and perhaps appears to have some knowledge in
this field. I would be interested in seeing some of his points debated.


John Butler
13 years ago

To Mr. Ohnee in Comment 55,

Thank you for having the courtesy to sign your name.
Frankly I am tired right now by the time and effort I have put into this over the last several months and I need a little time away from it. The voters by a ratio of 70/30 last night decided that they didn’t want to increase their taxes to leave the money in Town accounts. If there was a convincing argument to the contrary I think it would have been made and I would have supported it. I do not believe that there is a fair construction of the facts that can lead to the conclusion that taxpayers should be told that they can take money out of their pocket, put it into a Town account, and save themselves money by so doing. You are free to believe and vote otherwise when next the issue arises. This debate can continue, but it is not urgent now. If you will give me one to two week’s time on this I will try to look at your comment in more detail.

The Natural Truth
13 years ago

Thank you John. And thanks for serving us.

13 years ago

Mr Brownell is well known for his bullying posts. It started back with the movie blog posts. He does not attend meeting on regular basis but does feel the need to bash people who do and other who have opinions. If he held value in this town he would stop the bullying of others and step up to the plate and be active in this commuinty rather than put down the ones who do.
He may have some valid points but his approach is so rough that people don’t look beyond his name other than for pure entertainment.
Please Matt stand up and be active rather than just posting rude comments and put downs to others.

Thank you to all of my fellow citizens who step up and take active roles to make Southborough a better place.

Matthew Brownell
13 years ago
Reply to  Dee

A most mysterious and (again) cowardly post from blog anonymity, Dee.

You have absolutely no idea what I’ve done for the community, or the activities (time, labor, financial)that I’ve contributed to Southborough. And contrary to yet another false accusation from your Spy vs. Spy PEZ dispenser, I have attended nearly every Annual Town Meeting since I’ve lived in Southborough.

Your dog will not hunt, here, Dee.

if you don’t like “rude” [i.e., confrontational comments], I suggest you find an occupation other then raiding Southborough’s saving’s kitty, and freely spending other’s tax monies.

And yet, you seem quite at ease with your lap dog accusations of bullying. ou And what, mm

John Butler
13 years ago

A few weeks ago I promised to respond to some of the comments here, but I requested a small break after Advisory’s Town Meeting work had completed. Although I think that the paper that we published a few months ago continues to be a good guide to the subject, as was the powerpoint delivered at Town meeting five years ago, I tried to think of what else might be said that hadn’t been said already in those documents. As this became somewhat long and wanted two graphs for its explanation, I have posted the document to the Advisory web site at, in the middle of the page, under Stabilization Fund, Reply to Critics.pdf. I hope that is not inconvenient for anyone.

I am confident that this analysis, as a whole, occupies the only ground that Advisory can occupy in making a recommendation to the voters. Since Town Meeting adopted our recommendation by a 70% vote, and we are not recommending any further reductions in Stabilization, the issue is moot at this point. Under these circumstances, I am going to be disinclined to reply to further comments. However, for all of you who joined this debate under your real names, I thank you for engaging on this topic, and for your interest. I look forward to seeing you at future meetings.

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