Fitch Rates Guilford, CT's GO Bonds at 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA+' rating to the following town of Guilford, CT (the town) general obligation (GO) bonds:

--$17.7 million GO refunding bonds, series 2012A.

The bonds are expected to sell on Nov. 14, 2012.

In addition, Fitch affirms the following ratings:

--$2.3 million GO bonds, series 2002A at 'AA+;

--$2.2 million GO bonds, series 2002B at 'AA+;

--$14.6 million GO bonds, series 2008 at 'AA+;

--$17.2 million GO bonds, series 2010 at 'AA+.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the town's full faith and credit and unlimited taxing authority.

KEY RATING DRIVERS

HEALTHY FINANCIAL PROFILE: Prudent budgeting practices underscore financial flexibility, improved and satisfactory reserves, and sufficient liquidity.

STRONG SOCIOECONOMIC METRICS: The town's highly skilled labor force drives low unemployment and wealth levels that continue to exceed both state and national averages.

INCREASING DEBT PROFILE: Debt levels are currently low, but are expected to double due to borrowing planned for a high school construction project beginning in 2014.

MANAGEABLE POST-EMPLOYMENT LIABILITIES: Annual pension and other post-employment benefit (OPEB) costs are currently manageable.

CREDIT PROFILE

STRONG ECONOMY DRIVEN BY HIGHLY SKILLED & AFFLUENT WORKFORCE

Guilford is an affluent residential community located about ninety minutes north of New York City. Many residents work in nearby cities such as Hartford, New Haven, and New London. The town benefits from a large healthcare presence and its proximity to several colleges and universities, including Yale. Over a third of the town's labor force works in health care, professional services, educational services, and management. This highly educated labor force drives the town's strong performance in wealth and employment indicators.

Income and wealth levels are very high, with the town's median household income and per capita income equivalent to 145% and 142% of already high state averages. Guilford's unemployment rate of 6.4% for August 2012 is lower than both state and national levels, at 9.2% and 8.2% respectively. Market value per capita is a high $223,000 based on the fiscal 2013 estimated market value of $5 billion.

HEALTHY FINANCIAL PROFILE

Guilford experienced positive financial results in fiscal 2011 after several consecutive years of operating deficits. The town ended the year with a net operating surplus of $1.04 million, equal to 1.3% of spending, and increased its unrestricted fund balance (committed, assigned, and unassigned as per GASB 54) to $4.5 million, or 5.6% of general fund spending. Fitch believes this level of reserves is satisfactory for the rating level given the stability of the property tax, by far the town's largest revenue source. The positive results were primarily due to salary savings achieved from employee attrition and a hiring freeze implemented for senior positions.

In fiscal 2012, the town expects to close the year with an estimated $980,200 general fund net operating surplus. Prudent budgeting led to a $1.5 million positive expenditure variance across all departments. The town had budgeted conservatively in light of Hurricane Irene and the uncertainty surrounding Federal Emergency Management Agency (FEMA) related reimbursements. Resources were short $507,000 due to a planned transfer in from the town's land acquisition fund to support debt service that never materialized given the positive expenditure variance. Property tax revenues accounted for 92% of general fund revenues (unaudited) while intergovernmental support accounted for a low 5.3%.

Tax collections have consistently exceeded a strong 99%. Management estimates fiscal 2012 unassigned fund balance to be 5.2% of total general fund revenues. The town supplements the general fund with a combined $2 million in special revenue fund reserves which, when added to the estimated unassigned general fund balance, equals 7.7% of fiscal 2012 general fund spending. The town's internal service fund is also over-funded by approximately $500,000 according to management, providing excess self-insurance claims coverage if needed.

The fiscal 2013 budget remains conservative. Projected increases in property tax revenues of $3.3 million due to a 3.9% millage rate increase are expected to offset budgeted decreases in non-property tax revenues and increased education and employee costs. The town did not appropriate any fund balance, which is consistent with its reserve fund policy. The budget includes $638,000 in pay-as-you-go capital improvements, an increase of $162,000 from 2012.

Management does not expect economic and financial effects due to Hurricane Sandy to be material. Fitch believes this expectation is reasonable given indications of damage based on publicly available sources and the town's experience with three prior storms where it received substantial FEMA reimbursements for its eligible costs. Management will be seeking reimbursement again this year to help offset cleanup and storm-related costs.

MANAGEABLE LONG-TERM OBLIGATIONS

The town's overall debt levels are low with overall debt to market value at 0.8% and debt per capita equal to $1,885. Amortization rates are moderate with 50% of par maturing in 10 years. Annual debt service costs equated to a moderate 6% of fiscal 2011 spending. Debt levels are projected to increase due to the town's successful voter initiative for the construction of a new high school building resulting in an anticipated $63 million of new issue borrowing. The town also has authorized but unissued debt for various capital projects totaling $10 million that is expected to be issued within the next 12 months. Fitch expects debt levels to rise into the moderately low range.

The town maintains three pension plans, which have been well-funded historically. As of late, pension benefit costs have increased, with the combined funded ratio falling to 74%. Pension costs for fiscal 2013 are budgeted at $3.0 million and represent a manageable 3.6% of the total 2013 budget. Fitch views positively the plans' assume investment rate of return of a below-average 7%. The town's unfunded OPEB liabilities are low at $5.4 million as of July 1, 2010 and annual actual and ARC payments are modest. Fitch does not expect pension and OPEB costs to pressure the credit in the near term.

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, National Association of Realtors, and Roosevelt & Cross.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst
Gary Huang
Analyst
gary.huang@fitchratings.com
+1-312-606-2337
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Kevin Dolan
Director
+1-312-606-2337
or
Committee Chairperson
Amy Laskey
Managing Director
+1-312-606-2337
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Gary Huang
Analyst
gary.huang@fitchratings.com
+1-312-606-2337
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Kevin Dolan
Director
+1-312-606-2337
or
Committee Chairperson
Amy Laskey
Managing Director
+1-312-606-2337
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com