WELLFLEET — A successful auction of municipal bonds on Aug. 29 shows that Wellfleet’s finances are making a strong recovery, said Town Administrator Rich Waldo.
The auction, which attracted 15 bidders, sold a total of $11 million in bonds to Piper Sandler and Fidelity at an interest rate of 3.5 percent, an “extremely competitive rate,” Waldo said. This came as a surprise after Standard & Poor’s (now S&P Global Ratings) downgraded Wellfleet’s bond rating last spring to AA+ with a negative outlook. “There were concerns that we would get higher rates,” Waldo said.
But there was strong interest in the town’s bonds after Bloomberg published an article on Aug. 25 announcing the upcoming auction. The article referred to Wellfleet as an “affluent Outer Cape Cod beach town” with a “preponderance of pricey second homes.”
The article, Waldo said, “drummed up a lot of interest.”
“My Monday was filled with underwriters calling, wanting to know more of what was going on in Wellfleet,” said Lynne Foster-Welsh, the town’s financial adviser, at the Sept. 5 select board meeting. In a bond auction, underwriters submit electronic bids to compete for the opportunity to lend money; the bid with the lowest interest rate is awarded the bond contract.
The Bloomberg article pointed to the town’s purchase of Maurice’s Campground as the reason for tapping the municipal bond market, with $5.7 million of the proceeds to be used to retire notes from the purchase. But according to Waldo, the total amount represents all the Proposition 2½ borrowing authorizations the town has approved since 2019.
Waldo said that, since then, the town had been waiting to issue bonds, instead using short-term borrowing known as Bond Anticipated Notes (BANs) for projects until it got its finances in order. “Now that we have caught up with our financials and our audits, we felt it was important to clean up all of these miscellaneous BANs into one bond,” said Waldo.
And despite the arrival of Powers & Sullivan’s fiscal 2022 audit of the town’s finances, delivered to the town on Aug. 8, S&P Global decided to maintain Wellfleet at its current bond rating, Waldo said. (Anytime the town goes to the market, S&P issues a new rating, Waldo said.) The rating reflected the town’s ongoing struggle to recruit and retain staff in its finance department.
In its April downgrade, S&P noted that Wellfleet’s staffing crisis, which had led to an all-out meltdown in the finance department, “has spanned the last decade due to rapidly rising housing costs, a shortage of public finance professionals on Cape Cod, and its significant commuting distance from the Cape’s larger year-round population centers.”
Wellfleet is not the only municipality to face a rating downgrade because of staffing trouble. In March, S&P placed 149 localities on a negative credit watch list, citing a dearth of municipal auditors and accountants. In June, job openings in state and local government hit a record high of 970,000, according to the Bureau of Labor Statistics.
But a lack of staff was not the only cause of the town’s financial woes, according to a series of recent audits, including the fiscal 2022 audit delivered last month. Mismanagement at Wellfleet Town Hall has been pervasive, according to Powers & Sullivan.
The 2022 audit, provided to the Independent by Waldo, includes a management letter that lists three material weaknesses, defined as a serious misstatement of the town’s finances. Those material weaknesses are the same ones listed in the town’s 2021 audit; they are the result of unreconciled cash balances, unreconciled receivable accounts, and a failure to record transactions to the town’s general ledger.
According to the audit, at the end of fiscal 2022 there was still an unknown variance of $343,000 in the town’s cash books, a slight increase from the $325,000 positive variance found in the 2021 audit.
The management letter did not include any additional comments on deficiencies in internal control — a notable improvement from the 14 comments the town received in its 2021 audit.
The audit also pointed to positive changes in the town’s finances. The town’s net position increased to $13.1 million from $9.9 million in 2021 due to “positive budgetary operations in the town’s general fund.”
“The market saw that audit, saw the issues we face, and still leaned more in favor of our strong financials,” Waldo said.
He added that while the fiscal 2022 audit still revealed problems in the town’s finances, “it’s a big improvement, and I expect fiscal 2023 to improve even more.”
Waldo said that the town is finalizing full reconciliation of the books for fiscal 2023. It will submit a balance sheet to the state Dept. of Revenue by the end of September, which Waldo said will put the town on par with most other municipalities in the state.