Work on Cambridge City Hall on Feb, 27. (Photo: Julia Levine)

Cambridge maintains its top credit scores for the 25th year in a row and is one of only 24 cities nationwide with a trifecta of highest-possible ratings, said City Manager Yi-An Huang, but several factors threaten the city’s long-term financial standing.

In his report to the City Council on March 18, Huang identified areas where the city’s financial status was strongest, as well as where improvement was necessary to maintain the city’s credit rating.

“The rating agencies highlighted the city’s strong management and fiscal practices; financial flexibility; formal policies; budgetary stability; and very healthy reserves,” Huang wrote. “While factors that can lead to a downgrade include significant decline in reserves; sustained local economic decline; long-term liabilities related to pension and OPEB obligations; and sustained increase in expenditures outpacing revenues leading to reduction in overall flexibility.” The term refers to Other Post Employment Benefits for retirees, which cover items other than pensions, such as health care.

Staff said in December that a period of austerity that was warned about for years has arrived, and elected officials have to start setting priorities for what projects get a go-ahead for the next five to 10 years and what must be scaled back or halted. Budget discussions are underway for the 2025 fiscal year starting July 1.

Scores from Moody’s Investor Services, S&P Global Ratings and Fitch Ratings that speak well of a city’s finances makes lenders more likely to extend loans and lines of credit at low rates. That helps communities pay for projects and make good on the loans for less money.

“The ratings agencies, through these triple-A ratings, were once again confirming their faith in how well-run the city of Cambridge is,” said Claire Spinner, assistant city manager for fiscal affairs.

Cambridge has to look out for spending more than it’s taking in, Spinner said: “Any sort of sustained increases in expenses that would be outpacing increases of revenues would lead to some decline in our excess levy capacity and the resulting decline in our financial flexibility. So those are things [the credit agencies] put out there as things that they would have a concern [about], if they were to see a change in any of those things. But overall, I think we were very pleased with our conversations with the rating agencies.”

Cambridge has remained in good standing with the three credit agencies since 1999, even while weathering the economic instability brought on by the Covid-19 pandemic. In the future, Huang points to potential financial liabilities in risks to physical infrastructure from climate change and the city’s changing commercial environment.

“While we remain in an enviable position, these reports remind us that we cannot take for granted our careful planning around spending, reserves, long-term liabilities and borrowing, [which] will be crucial to maintain the city’s sterling credit rating and robust financial health for the future,” Mayor E. Denise Simmons said, closing out discussion of Huang’s report. “I just wanted to add my voice to the chorus of concern around just where we’re going with our spending.”