By EMILY SPARACINO / Staff Writer

CHELSEA – A strong economy, budgetary performance and liquidity were among several factors Chelsea was noted for in its most recent credit rating.

For the second consecutive year, Standard & Poor’s Rating Services assigned to Chelsea a AA rating for 2016, in addition to affirming the city’s AA long-term rating with a stable outlook.

“We are a long-term rating of ‘AA,'” Mayor Earl Niven said during a pre-council meeting on Jan. 19, adding the rating is among the highest for cities of Chelsea’s size. “I think it’s something we as a city ought to be proud of.”

Chelsea’s rating increased from AA-minus to AA in 2015.

The rating reflects Standard & Poor’s assessment of factors, including a strong economy; adequate management with financial policies and practices; strong budgetary performance; very strong budgetary flexibility; strong liquidity; adequate debt and contingent liability position; and a strong institutional framework score.

Chelsea has a population of roughly 12,000 and has “access to a broad and diverse metropolitan statistical area,” which is the Birmingham-Hoover area.

“The city is a bedroom community and continues to experience home development, with new home permits continuing to hover between 140 and 160, annually,” the report read.

Regarding management conditions, city management and elected officials hold monthly meetings to review the budget, and the city maintains an informal fund balance target of three months’ operating expenditures, according to the report.

“Chelsea adheres to state statutes regarding investment reporting and the mayor provides council members with a monthly comprehensive investment report,” the report read. “The city lacks formalized long-term financial and capital planning. In addition, there are no formal debt management policies.”

Chelsea’s “strong budgetary performance” is based on the city having surplus operating results in the general fund of 27 percent of expenditures, and balanced results across all governmental funds of 0.1 percent in fiscal year 2014.

“Our assessment accounts for the fact that we expect budgetary results could deteriorate somewhat from 2014 results in the near term,” the report read. “While the city is anticipating large surpluses in the general fund, the total governmental fund is not expected to produce surpluses as the city has plans to fund major capital improvements from these funds.”

Capital projects the city has undertaken in the last few years include the community center and sports complex.

Budgetary flexibility was an area labeled “very strong.” Chelsea had an available fund balance in fiscal year 2014 of 29 percent of operating expenditures ($1.3 million).

“For fiscal 2016, the city is expecting a significant surplus, primarily because it budgeted $1.06 million in capital projects to be funded internally from reserves that will now be funded with this issue,” the report read.

Liquidity was another area labeled “very strong,” as total government available cash was at 16.1 percent of total government fund expenditures and 88.7 percent of governmental debt service in 2014, giving the city “strong access” to external liquidity.

“The stable outlook reflects our view of Chelsea’s strong financial profile,” the report read. “We do not expect to change the rating over the next two years because we believe the city’s management team will remain committed to maintaining the existing financial position. Chelsea’s inclusion in the Birmingham MSA economy also supports the stable outlook.”