NEW YORK--()--Fitch Ratings affirms its 'AA+' rating on the following outstanding Bethel, CT (the town) general obligation (GO) bonds:
--$50.7 million GO general improvement and sewer bonds.
The Rating Outlook is revised to Stable from Negative.
The bonds are general obligations of the town backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
OUTLOOK REVISION DUE TO PENSION IMPROVEMENTS: The Outlook revision to Stable from Negative reflects management's heightened attention to its town-managed pension deficiencies. Management increased funding to above recommended levels in the current year and expects to maintain this trend in the future.
SOUND FINANCIAL PERFORMANCE: The town's prudent management of expenditures and moderate tax increases has resulted in consistently sound general fund reserve levels.
AFFLUENT TAX BASE: Bethel is a primarily residential area located in affluent Fairfield County. Taxable values are expected to decline as a result of an upcoming revaluation, but management's ability to adjust its tax rate accordingly mitigates concern.
FAVORABLE SOCIOECONOMIC INDICATORS: Wealth levels are above average, and unemployment is low relative to the state and nation. The town serves as a bedroom community for local employment centers.
MODERATE DEBT PROFILE: Debt levels are moderate and are not expected to change materially as future capital needs are reportedly limited. Principal amortization is above average.
FAVORABLE SOCIOECONOMIC INDICATORS
The town of Bethel is located in northern Fairfield County, Connecticut, one of the nation's wealthiest counties. The town's economic profile is supported by a high market value per capita of $175,000 in 2011, even after a 0.2% market value decline from 2010. The town's tax base is undergoing a statutorily required five-year revaluation on Oct. 1, 2012 (effective for the fiscal 2014 budget) and management expects an adjustment downward in property values. Management reports it will adjust its tax millage rate upward accordingly to ensure a neutral effect on revenues. Economic data for the town is unavailable from the Census Bureau, but the county's median household income is substantially higher (156%) than the national average.
Planned developments include a new 200 unit mixed use development which is expected to break ground in the spring of 2013. Furthermore, the town has begun a revitalization project for its industrial park with large growth potential. Management reports that additional projects are underway or planned for the near future, contributing to the economic development and tax-base growth for the town.
The town's well-educated residents benefit from access to the labor market in south Fairfield County. The town's own employment base is somewhat limited and includes a mix of jobs in manufacturing, research, and services. The 10 largest employers are led by Ability Beyond Disability, Bethel Healthcare, and P&G Gillette. The town's June 2012 unemployment rate is down to 6.6% from 7.1% a year prior, and below the state (8.1%) and the national (8.2%) rates.
SOUND FINANCIAL PERFORMANCE
The town's finances are well managed producing consistent operating surpluses. General fund revenues have been supported by annual property tax increases offsetting minor shortfalls in non-tax revenues and state aid. Operations for fiscal 2010 and 2011 were essentially flat after transfers, keeping fund balance in check. The town's fiscal 2011 unrestricted general fund balance (the sum of committed, assigned, and unassigned as per GASB 54) totaled $7 million or a sound 11% of spending, slightly above the town's informal policy of unassigned general fund balance at 10% of spending.
The fiscal 2012 general fund operating budget grew by a manageable 2.6% over that of the prior fiscal year and includes expenditure growth in education costs, employee salaries, and pension funding. The town over-funded its actuarially required pension contribution (ARC) of $1.9 million on a combined basis by $200,000. Revenues and expenditures are on target and management projects no change to unassigned general fund balance.
EXPECATIONS FOR FISCAL 2013
The town's fiscal 2013 general fund budget of $65 million is up by a moderate 2.5% from fiscal 2012. The budget includes a 5% increase in property tax revenues (equal to approximately $2.6 million) to support increases in employee benefits, highway improvements, and insurance costs. The budget does not include appropriation of fund balance. Education funding, which represents the town's largest general fund expenditure (60.7%), is budgeted to increase by approximately 3.7% compared to the year prior.
PENSION FUNDING A WEAKNESS
Bethel's two single-employer defined benefit pension plans have an aggregate funded ratio of 59% as of June 30, 2011, using Fitch's conservative 7% investment rate of return. The unfunded liability of $13.2 million equals a manageable 0.4% of 2012 market value. The unfunded liability is partially a result of benefit changes earlier in the decade coupled with the town's chronic underfunding of its ARCs. In fiscal 2011, the town paid 88% of its ARC payment on a combined basis of $2.3 million, the full cost of which equaled a manageable 4.1% of general fund spending.
In fiscal 2012, the town paid $2.7 million on a combined basis, above the recommended ARC for both the town and police pension plans. This amounted to 108% of the combined ARCs. Fitch expects that town management will continue to contribute at least 100% of the required ARCs as management has said that it is committed to do so.
Other post-employment benefit (OPEB) costs are manageable at $0.5 million, equal to the implied cost subsidy, or approximately 0.8% of fiscal 2011 spending.
MODERATE DEBT METRICS
Overall debt levels are moderate at $3,072 per capita and 1.8% of market value. The debt service burden represented an affordable 7.6% of general fund spending in fiscal 2012. Fitch expects that the town's debt burden will remain low given the town's limited debt plans.
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