Telecom resolution drives 'major upgrade' to Vermont's largest city

Growing reserves spurred a two-notch credit upgrade for Burlington, Vermont, marking another milestone in the city’s fiscal turnaround from a failed venture into municipal-owned broadband.

Moody’s Investors Service boosted the general obligation bonds for Vermont’s largest city to Aa3 from A2 Tuesday citing strong fund balance levels and elimination of risks from debt tied to a past partnership with Burlington Telecom (BT). The Moody’s action, which applies to $53.7 million of GO debt, puts Burlington at the same rating it held prior to facing six bond downgrades from 2010 to 2012 while facing a financial crisis driven by troubles with the city-run telecom enterprise.

“This major upgrade is a recognition that Burlington has completed its dramatic financial turnaround,” Mayor Miro Weinberger said in a statement. “At long last, after seven years of focused effort, our rating now reflects the thriving, innovative, well-managed, and progressive city that we are.”

Burlington has found its way into high investment grade territory 10 years after the city discovered it be unable make payments on a $33.5 million lease with Citibank, which was hired to finance the broadband service. Citibank filed a $33.5 million lawsuit against Burlington and BT in 2011 that was later settled for $10.5 million. The settlement was funded largely by a $6 million of bridge financing the city received from Blue Water Holdings through the sale of telecom enterprise assets.

Burlington closed the transfer of BT to a unit of privately held Schurz Communications this past March for $30.8 million, which will net the city around $7 million following various adjustments and when factoring in funds needed to settle the Citibank litigation. The BT sale closed a tumultuous chapter for Burlington that began when voters approved a 2000 referendum to provide alternative broadband service to Burlington residents.

Moody’s analyst Blake Cullimore credited Burlington’s management team with its execution of the BT litigation and for commitment to sound budget practices. The city has grown its reserve position to $16.8 million in 2018 compared to negative $11.4 million it faced during 2012 fiscal year, according to Cullimore. A surplus between $500,000 and $800,00 is projected for the close of the 2019 fiscal year.

“The financial position continues to strengthen and reflect conservative budget management resulting in surplus income, building of reserves and cash,” Cullimore wrote in his July 24 report.

Mayor Weinberger has credited voter approval of a $9 million fiscal stability bond in November 2012 with being an instrumental part of the city’s fiscal turnaround since it enabled it to reduce reliance on short-term financing.

The city, whose population was 42,899 based on the 2018 American Community Survey estimates, has avoided cash-flow borrowing since the 2014 fiscal year, according to Moody’s.