Fitch Rates Meriden, CT GO Bonds 'AA-'; Outlook Stable
Fitch Ratings has assigned an 'AA-' rating to Meriden, CT's (the city) general obligation (GO) bonds as follows:
--$10 million GO refunding bonds, issue of 2012.
The bonds are scheduled via negotiation on or about December 27, 2012.
In addition, Fitch affirms the following ratings:
--$39.6 million GO bonds at 'AA-';
The Rating Outlook is Stable.
The bonds are a general obligation of the city backed by its full faith, credit, and unlimited taxing authority.
KEY RATING DRIVERS
SOUND FINANCIAL PERFORMANCE: The city's prudent and conservative budgeting practices have resulted in sound operating results somewhat offsetting pressure from potential reductions in state aid and increased costs for education and public safety.
MIXED SOCIOECONOMIC INDICATORS: Wealth levels are above average, and unemployment is high relative to the state and nation.
LOW DEBT BURDEN: Debt levels are low with above-average amortization of principal. Future borrowings are planned for new school construction and recurring capital maintenance and replacement costs. Debt policies should keep ratios in acceptable ranges.
MANAGEABLE RETIREE COSTS: The city has been making 100% of required contributions to its pension plans and prudently increased annual contributions for its other post-employment benefits (OPEB) obligation. These liabilities are currently at manageable levels.
Meriden is located in northeast New Haven County, midway between New Haven and Hartford with a 2011 population of 60,770. The city benefits from a somewhat diverse tax base and stable population.
MIXED SOCIOECONOMIC INDICATORS
The city is home to Midstate Medical Center, a full- service hospital, Meriden Campus - Middlesex Community College, a major mall, and a number of manufacturing firms with diversified product lines. The top-ten taxpayers represent a moderate 8% of net taxable grand list. The city continues to focus on attracting new businesses and reclaiming and rehabilitating existing land and properties for future development.
The city's tax base was revalued on Oct. 1, 2011, as part of the statutorily required five-year revaluation (effective for the fiscal 2013 budget). The city's fiscal 2013 market value is currently $4.6 billion and has decreased 10.7% from last year. The city prudently increased property tax rates by 4 mils to maintain revenue neutrality. Wealth levels exceed national levels but are below the strong state of Connecticut levels. The city's September 2012 unemployment rate remains unchanged from a year prior at 10%, which is higher than both the state (8.2%) and the nation's (7.6%) rates.
SOUND FINANCIAL MANAGEMENT
The city's finances are well managed and have produced operating surpluses fiscal years 2009, 2010, and 2011. General fund revenues have been supported by annual property tax increases offsetting minor shortfalls in non-tax revenues and state aid. The city's fiscal 2011 unrestricted general fund balance (the sum of committed, assigned, and unassigned as per GASB 54) totaled $17.3 million or a sound 9.6% of spending, marginally above the city's recently adopted formal policy of maintaining an unassigned fund balance level equal to the average of one month's budgeted annual spending for the prior audited fiscal year which was equal to 8.33% of spending.
At the end of fiscal year 2012 the unrestricted general fund balance totaled $16.6 million, equal to a still satisfactory 8.6% of spending, and in compliance with the city's fund balance policy. The $0.7 million reduction in fund balance is attributed to the city's increased funding of OPEB over pay-as-you-go spending. The city has also completed negotiations with labor unions for the existing pension plans which will produce a reduction in the OPEB liability as well as stabilize pension contributions. The city will not be providing OPEB benefits for new employees hired after July 1, 2011.
EXPECTATIONS FOR FISCAL 2013
The city's fiscal 2013 general fund budget of $183.6 million is up by a slight 1.4% from fiscal 2012. The budget includes a 4% increase in property tax revenues (equal to approximately $4 million) to support increases in public safety, highway improvements, and insurance costs. The budget includes a $1.2 million appropriation of fund balance to once again support increased contributions to its OPEB trust. Beginning in fiscal 2014 management has said that OPEB contributions will become structured into the budget which Fitch views as a credit positive. Management anticipates fund balance levels to remain at or slightly above policy levels, which Fitch believes is reasonable based on policy practices and history.
LOW DEBT BURDEN
Debt levels remain moderate to low with debt per capita at $1,025 and debt to market value at 1.2%. GO debt amortizes at an above average rate with 65.2% of principal amortized in ten years. Debt service as a percentage of general fund expenditures has been declining and was 6.2% in fiscal 2012 compared to 10.7% in 2006, and is close to the enacted goal of 5% of spending. The city enacted additional conservative debt policies in February 2010 which it is currently adhering to.
The city's fiscal 2013 through 2018 capital improvement program totals $322 million, with the majority of the projects pertaining to school construction, traffic enhancements, water infrastructure, and engineering improvements. The majority of projects are funded through federal and state grants and user fees. The city anticipates the issuance in February 2013 of approximately $25 million in new debt for school construction and general improvement purposes. The new debt issuance should not heighten the city's debt burden materially as it plans to adhere to its conservative debt policies and receive expected state and federal support.
MANAGEABLE RETIREE COSTS
The city administers three pension plans for its general, fire, and police employees. In accordance with its policy, it has made 100% of its annual required contributions (ARC) for the last five years for each of these plans. Contributions in fiscal 2012 for all three plans totaled $8.5 million (4.4% of general fund spending). As of July 1, 2010 the general employees' plan was 105% funded; the police plan was 62.9% funded; and, the fire plan was 68.4% funded. Using Fitch's more conservative 7% discount rate assumption, the plans would be funded 94.6%, 56.5% and 61.6%, respectively. The combined unfunded liability for the police and fire plans totaled $60.1 million. The city has established a defined contribution plan for non-public safety employees hired as of July 1, 2011 which is expected to reduce future pension obligations.
The city's fiscal 2012 OPEB contribution was $5.6 million (51% of its ARC), equal to manageable 3% of spending. The unfunded OPEB liability was $99.2 million as of July 1, 2010. Management is projecting a decline in the future OPEB ARCs due to agreed increases in employees' contributions toward future benefits.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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