Making the grade: S&P boosts Johnston’s rating to AA

The town of Johnston received a AA rating from Standard & Poor’s earlier this month, just one week after the Public Finance Management Board’s debt affordability study rated Johnston’s long-term other post-employment benefits, or OPEB, and net pension liabilities among the worst in the state.

The mark is Johnston’s best under the administration of Mayor Joseph Polisena, who took over with a BBB+ rating that was two notches from the lowest rung. The town leapt to A- in August 2009 before achieving an A+ rating in May 2013. Johnston reached its latest level, AA-, on June 2, 2014.

Polisena and Finance Director Joseph Chiodo credited controlling expenditures, better revenue flows and, most importantly, “very aggressive” tax collection efforts in resurrecting the town’s rating.”

“In the past, it was kind of like a wink and a nod, and if people knew somebody they kind of got away with things,” Polisena said during a joint interview with Chiodo in his office last Thursday. “Over here, I don’t care if you know the president of France. I’m being obviously facetious, but the issue is, I don’t care who you know. You pay your taxes.”

Chiodo noted that Polisena has cut 60 employees from his operation over the course of his time in Johnston, shedding costs and lauding his department heads for doing more with less.

“We still offer the best services around, whether it’s police, fire, DPW, our recreation programs are still good,” Polisena said. “And I’ve got to credit my department heads, too. They’re all doing more with less, as well as the employees here. So we’re in really good shape. I think we’re very, very happy with this report … We’re chipping away at legacy costs that were obviously put on me and on the next few mayors from years ago.”

Polisena referenced a quote that earned him “The Sound Bite Award” from the Johnston Sun Rise in January 2012: “The hardest part of this job is keeping the good old boys from the bad old days out of this town.”

Polisena said the town continues to hold tax sales if residents don’t pay, and ensured that residents can’t elude collection efforts like in the past.

“I’m telling you, it was bad back then,” Polisena said, referencing collection efforts during previous administrations. “And a lot of people got away with not paying their taxes. So we have a very, very aggressive tax collection. We make sure that everybody pays their fair share because, you know, if Mr. ‘X’ doesn’t pay his taxes, then that means the rest of the people are on the hook for paying his taxes indirectly, so to speak.”

The report labels both Johnston’s economy and financial management as “strong.” S&P notes that Johnston’s market value grew by 11.8 percent over the past year, and unemployment was at 4.4 percent in 2018.

S&P notes that rezoning and infrastructure upgrades to Route 6 are “driving growth and economic development.”

“Management reports that business investment equal to about $1 billion has occurred through various construction projects, including a corporate bank facility and a hospital specializing in rehabilitation services,” the report reads. “Although residential development is also underway, ongoing commercial construction will support tax base expansion over the long term and potentially lead to an improved economic profile.”

While S&P rated the town’s budgetary performance as “adequate,” subsequent sections detailed Johnston’s “very strong” budgetary flexibility and liquidity. The report notes the cumulative surplus, also mentioned by Chiodo, totaling upward of $30 million.

The report adds that Johnston’s total government fund debt service and low overall net debt are offset by the aforementioned OPEB and net pension liabilities. Polisena said those figures, as displayed in the PFMB’s debt affordability study, were correct and unsurprising.

He once again targeted the so-called evergreen contracts bill – which extends the wages and benefits of municipal workers and teachers as negotiations on a new contract continue – for creating an obstacle to the alleviation of the town’s liabilities.

As he did in a recent interview, Polisena referred to the biennial debt affordability study as “political” and said if S&P was concerned, it wouldn’t have boosted the town’s rating.

“The long-term debts such as pension and OPEB always dogs us, but we’re chipping away at it, even though [General Treasurer] Seth Magaziner did nothing – I can’t let that go, I’m like a dog with a bone – about the lifetime contracts,” Polisena said. “Now it’s going to be more difficult with the lifetime contracts that Seth Magaziner was silent on. We’ll get it done. It takes a little bit of time, but we’re getting it done.”

Chiodo said the town’s OPEB trust fund – which did not exist prior to Polisena’s administration – contains more than $5 million. The report notes the establishment of the fund, but states, “we believe the contributions as well as the liability remain significant.”

Overall, S&P concludes it does not anticipate altering Johnston’s rating within the “two-year outlook horizon.”

“The stable outlook reflects our view of Johnston’s improving economy as well as management’s implementation of structural changes to revenue and expenditures to maintain budgetary balance, leading to multiple years of surpluses and higher reserves,” the report reads. “Given the flexibility provided by reductions in operating expenditures, we believe in increasing costs associated with long-term liability contributions will not materially affect the town’s restored financial position.”

S&P notes that the “downside scenario” for Johnston would bring about a lower rating through increased OPEB and pension contributions putting a strain on the town’s budgetary balance. However, though it is “unlikely,” a higher rating could come about through economic expansion and “substantially higher wealth and income metrics.”

“This shows that there is a light at the end of the tunnel,” Polisena said. “We’re focused on the prize so to speak, and that is to do more with less and have less government. I know a lot of times people call and they get ticked off because they called three days ago for a pothole. They might have to wait five days because we’ve got less people. I’ve got less people doing the job.”