QUINCY ‒ Quincy’s economic outlook has been revised downward from stable to negative, while maintaining its “AA” score on long-term debt, according to S&P Global’s ratings. “AA” is the third highest grade issued by the agency.
The change stems in part from the $91.9 million loss on investment sustained by Quincy’s retirement system in 2022, the year after the city borrowed $475 million to cover its long-term pension obligation, according to the S&P’s ratings report published in April.
“The negative outlook on Quincy reflects the city’s elevated debt burden and diminished budgetary flexibility following years of rising costs,” said S&P Global Associate Director Michael Parker, who authored the report, in an email to The Patriot Ledger. “The investment losses from the retirement system were considered in our analysis of rising costs for the city.”
The move from stable to negative means that there’s a one-in-three chance that S&P Global will downgrade Quincy’s credit rating, according to the report.
A lower credit rating can raise the price of borrowing money, making it harder for municipalities to finance important public projects by issuing debt, according to MunicipalBonds.com.
Quincy finance director responds to negative economic outlook
At the May 13 Finance Committee meeting, Municipal Finance Director Eric Mason addressed the negative outlook when questioned by Councilor-at-large Scott Campbell. Mason attributed S&P’s revision to national politics.
“Due to the uncertainty of federal aid, virtually every municipality across the United States, not just the commonwealth, is having their outlook changed to negative,” Mason said.
S&P’s ratings report did not mention uncertainty over federal aid, attributing the outlook revision instead to the city’s “elevated debt burden and diminished budgetary flexibility following years of rising costs.”
Parker reiterated that Quincy’s negative outlook was determined by local factors, though he acknowledged his agency does consider policy changes at the federal and state levels.
“While we continue to monitor evolving policy both at the federal and state level, we have not taken rating actions broadly across the sector as a result of external shifts,” Parker wrote.
“Our outlook change focuses more on the city’s ability to absorb forthcoming debt and pension costs without significant tax increases for next year or additional drawdowns on stabilization reserves.”
In 2024, Quincy Mayor Thomas Koch drew $4.2 million from the city’s pension reserve to reduce the tax rate. In 2023, he drew $5.25 million from the same fund for the same purpose.
These drawdowns expose Quincy to economic volatility, Parker wrote: “We view this reserve as providing important additional budgetary flexibility and liquidity in the event of market underperformance.”
S&P notes that four years ago, Quincy contributed $5 million to a contingency reserve fund to deal with potential pension volatility, with plans to add another $5 million annually until its balance reached $30 million. The city has not followed through on this plan, according to S&P.
“To date, it has about $6.6 million in the dedicated reserve, approximately $13.4 million short of the goal.”
Mayor Koch’s office not concerned over investment loss or negative outlook
In a May 13 email, Koch’s chief-of-staff, Chris Walker, wrote that the $91.8 million loss in a single year should be viewed in the context of the pension obligation bond’s 18-year lifespan.
“The market is not expected to continuously move upwards, but rather ebb and flow,” Walker wrote. “We do not expect (the 2022 loss) to have a long-term effect on the City’s pension obligation as the City’s system is one of the highest funded in the State.”
The S&P report forecasts a downgrade to Quincy’s credit rating only if the city fails to address rising pension costs by raising taxes and contributing to reserve funds, Walker wrote, adding that the city has taken both actions with its proposed fiscal 2026 budget.
That proposal increases debt service to $89.1 million, $37.2 million of which goes to the pension bond. The budget would also add $2 million to the reserve fund, if passed.
What is the state of Quincy’s pension fund
Before Quincy borrowed $475 million in late 2021, when interest rates were historically low, pensions for city employees were woefully underfunded, with only 46% of benefits owed covered by the retirement system’s assetts.
After issuing the pension obligation bond, pensions for city employees (excluding teachers, who are covered under the Massachusetts Teachers’ Retirement System) were funded at a rate of 101%. At the beginning of 2022, the pension fund held $79.1 million more than it owed in benefits.
But in 2022, largely due to the $91.9 million investment loss, the retirement system’s net position fell by $124 million by year’s end, when it held $794.8 million in assets against $893.7 in liabilities, according to a 2023 financial statement.
The pension fund rebounded over the next two years, enjoying a 10.7% return on investment in 2023 followed by an 8.2% return in 2024.
From January to March 2025, fund assets increased by 0.3%, according to the retirement system’s most recent performance update.
This was not enough to recoup the 2022 loss and keep up with cost increases. The most recent biannual valuation report from 2024 noted that Quincy’s pension system has an unfunded liability of $82.1 million.
Now the city has two liabilities: the $82.1 million of unfunded pension benefits and the $475 million pension obligation bond, debt service on which will cost taxpayers $37.2 million annually through 2040.
One other Massachusetts community moved from stable to negative
Asked to name other municipalities whose outlooks have recently changed from stable to negative, Walker emailed The Patriot Ledger a list of nine government agencies from across the country, one city (Chillicothe, Ohio) and one county (Fayette County, Ohio).
In Massachusetts, only Greenfield has seen its outlook go from stable to negative, Walker wrote, while Danvers and Petersham have seen their credit ratings downgraded.
Boston, Cambridge, Somerville, Braintree and Worcester have all received stable outlooks this year from credit rating agencies.
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Reach Peter Blandino at pblandino@patriotledger.com.
