NEW YORK--()--Fitch Ratings has affirmed its outstanding ratings for Bristol, CT (the city) as follows:
--$75.3 million general obligation (GO) bonds at 'AA+'.
The Rating Outlook is Stable.
The bonds are secured by the city's full faith and credit and unlimited taxing authority.
KEY RATING DRIVERS
HEALTHY FINANCIAL PROFILE: Prudent financial management is evidenced by a history of strong reserves, ample liquidity, and overall financial flexibility. Fitch expects the city to adjust expenditures and raise the millage rate to offset an expected decline in its tax base and maintain balance.
LOW DEBT LEVELS: Debt ratios are favorable and are not expected to materially change, due to manageable future debt needs and a rapid par amortization rate.
STRONG MANAGEMENT OF OTHER LONG-TERM OBLIGATIONS: The city's pension systems have been significantly overfunded for several years and certain excess funds are being used to support other post-employment benefit (OPEB) costs. OPEB liabilities are manageable.
MIXED SOCIOECONOMIC INDICATORS: Wealth levels exceed national levels, but are below the high levels of the state. Unemployment remains above national averages but is in line with the state average. The city's economy is somewhat concentrated, as it is home to the headquarters of the Entertainment and Sports Programming Network (ESPN), the city's largest employer and taxpayer.
Bristol is a suburban city located twenty miles southwest of the state capital city of Hartford. The city has a 2012 population of 60,510.
HEALTHY FINANCIAL PROFILE
As are many cities in the state, the city is highly dependent on property tax revenues and intergovernmental support, which represent 61% and 35% of total general fund revenues, respectively. The city has exhibited prudent and conservative budgeting practices in recent years and has maintained a steady level of healthy reserves.
In fiscal 2012, the city ended with a $1 million operating surplus after transfers. As a result, the city's unrestricted general fund balance grew to $29.4 million, which represents a sound 15.4% of total spending. The surplus was driven primarily by conservative budgeting, greater than expected intergovernmental support, and increased tax collections. Management prudently used an additional $1 million of unbudgeted one-time surplus monies to fund a sinking fund for future capital expenditures. Unassigned general fund balance is currently 13% of budgeted 2013 revenues, which is compliant with the city's fund balance policy of maintaining unassigned fund balance above 10% of budgeted revenues.
The city's $183 million general fund fiscal 2013 budget saw an increase of 3.4%. Of this increase, 2.6% was for mandatory school funding requirements imposed by the state. Other major expenditure increases were for capital outlay and for growing health care and workers' compensation costs. The city's tax rate was increased by 5.5% to help offset the increase in expenditures. Notably, the city has continued to decrease its reliance on balancing the budget with fund balance. This budgeting practice was always out of conservatism and not need. Budgeted use of general fund balance fell to $625,000 for fiscal 2013, down from $725,000 in fiscal 2012 and $1.1 million in fiscal 2009. Management has indicated to Fitch that it expects to gradually end this practice entirely over the next few years.
SLIGHTLY CONCENTRATED ECONOMIC BASE
The city is the home of the Walt Disney Company-owned ESPN, which has its headquarters in the city. ESPN employs over 4,000 people and accounts for 6% of the city's fiscal 2012 taxable assessed value. This single-employer economic concentration is somewhat mitigated by ESPN's ever growing presence in the city and the company's strong business model. ESPN continues to expand its headquarters with the construction of a new 193,000 square foot digital center facility that will be completed in 2013. The city estimates that ESPN will top 5,000 employees within the next few years. Other economic drivers in the city include its technology park and the presence of energy, manufacturing, and real estate industries.
AVERAGE SOCIOECONOMIC METRICS
Income and wealth indicators are stronger than national levels but weaker than the above-average Connecticut state medians. Median household income in 2011 was 87% and 114% of the state and nation, respectively. Unemployment as of October 2012 was 8.7%, which is higher than both state and national unemployment levels, and is up from 8.1% a year prior. Population growth of 0.1% since 2000 lags both state and national trends.
The city is undergoing a five-year statutory revaluation of its grand list effective Oct. 1, 2012. Management is expecting a decrease of approximately 18%. This decline is similar to other communities in the state which have undergone revaluations and is due mostly to the decline in housing prices. The city has the unlimited authority to adjust the millage rate; however, management plans to first consider expenditure adjustments. Over time, the decline will also be partially mitigated by expected additions to the grand list. For example, Bristol Hospital, Inc. is being purchased by Vanguard Health Systems, which will change some of the hospital's value from tax-exempt to taxable. Additionally, as previously mentioned, ESPN continues to expand its headquarters in the city. Tax collection rates are strong at 98.7%.
MANGEABLE DEBT BURDEN
Overall debt levels are low at $1,350 per capita and 1.3% of 2012 market value. Future debt needs are manageable and should not materially change debt levels as the city historically has self-funded capital maintenance and equipment needs with reserves. Additionally, amortization of par is rapid at 74% in 10 years. Debt service as a percentage of fiscal 2012 general fund spending was an affordable 3.5%.
RESPONSIBLE MANAGEMENT OF OTHER LONG-TERM LIABILITIES
The city's employee pension systems remain over-funded despite the recent recession. The city has not been required to make any contributions since fiscal 2007. Using Fitch's conservative 7% discount rate assumption, the city's pension systems, in aggregate, are 155% funded as of July 1, 2011. The city is currently using excess funding monies to pay for fire and police employee OPEB costs in accordance with an IRS regulation that, according to management, provides for a formulary-driven amount of excess funding over 125% that is allowed to be used to pay for OPEB costs.
The city has continued to decrease its unfunded OPEB liability by prudently making annual contributions that are greater than its annual pay-go costs. The unfunded OPEB liability was $64 million as of July 1, 2010, or a low 1% of market value. The fiscal 2012 total OPEB contribution was $4.8 million, which represented 61% of the annual required contribution and a manageable 2.4% of general fund spending.
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 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