NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to the Town of Trumbull, CT's (the town) general obligation (GO) bonds and bond anticipation notes (BANs):
--$11.6 million GO bonds, issue of 2013 'AA+';
--$9.5 million BANs, 2013, 'F1+'.
Bond proceeds will refinance notes issued to fund various town capital projects. The BANs are being issued to fund various school and public works projects. The bonds and BANs are scheduled to sell via competition on Aug. 22, 2013.
In addition, Fitch affirms the following town ratings:
--Approximately $153 million outstanding GO bonds at 'AA+'.
The Rating Outlook is Stable.
The bonds and BANs are general obligations of the town backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
SOUND FINANCES: The town's finances feature prudent fiscal management resulting in solid general fund reserve levels that have been above policy targets.
SOUND TAX BASE; STRONG SOCIOECONOMIC INDICATORS: Income and wealth levels are above average and unemployment is low relative to the state and national levels. The town's 2011 taxable assessed value (TAV) showed a significant decline due to reassessment but grew modestly in 2012, with additional growth expected due to ongoing commercial development. Market value per capita remains high.
MODERATE DEBT PROFILE: Debt ratios and debt service as a percentage of spending are generally moderate, and amortization is rapid. Debt levels are expected to remain moderate as more sizable capital improvement projects near completion and future borrowing needs are expected to be smaller.
WEAK PENSION FUNDING: The town's pension funding levels are low and total annual contributions have been less than 100% of required levels. However, the town has taken steps to address funding deficiencies, including increasing annual contributions.
MARKET ACCESS: The 'F1+' short-term rating on the BANs reflects the town's strong credit characteristics and implied market access to issue bonds sufficient to retire the BANs.
The rating is sensitive to shifts in fundamental credit characteristics including the town's sound financial management practices. The town has a demonstrated history of maintaining solid reserves while addressing operating and capital needs, including ongoing efforts to improve pension funding levels. Continued efforts to improve pension funding are key to maintaining rating stability.
Trumbull is a wealthy and chiefly residential Fairfield County community situated between the cities of Stamford and New Haven. The 2012 population of 36,514 represents an increase of about 7% since 2000.
STRONG ECONOMY AND TAXBASE
The town's employment base is diverse, consisting primarily of government, health and business services, as well as retail trade and technology. The tax base is also diverse, with major taxpayers in utility, retail, real estate and financial sectors. The top taxpayer, the Trumbull Shopping Center, represents a sizable 4.2% of TAV, while the top 10 taxpayers make up a more moderate 9.1%. Total market value per capita is strong at about $174,000. Following the recent state-mandated five-year tax base revaluation, the town's 2011 TAV, or grand list, decreased by about 15% to $4.4 billion, reflecting a general downturn in property values since the last revaluation. The revaluation also resulted in a shift in the tax burden from residential to commercial properties due to greater stability in commercial rather than residential values and considerable commercial development in recent years
TAV saw modest growth in 2012 (0.7%), and additional growth is expected given continued development and expansion of the town's retail, corporate and health related tax base components in addition to stabilization in home prices. New developments this year have included a 96,000 square foot medical office building, a 72,000 square foot addition to an existing data center facility, and a 45,000 square foot retail plaza. Management reports that there are currently 90 commercial or industrial construction projects underway in the town, including the construction of a 90,000 square foot Bridgeport Hospital Medical Office Building that broke ground this month.
Unemployment remains below average at 6.3% in May 2013 compared to the state (8.1%) and nation (7.3%). Town wealth levels are high and local personal income levels continue to be well above state and national averages.
SOUND FINANCES FEATURE SOLID RESERVE LEVELS
Trumbull's financial position remains sound. The town has maintained general fund balance levels through the recent economic contraction at levels consistent with its informal fund balance policy of at least 10% of spending. Fiscal year 2012 ended with a general fund operating surplus that increased the unrestricted ending balance to $18.4 million (12.1% of spending) from $16.6 million (11.5%) in fiscal year 2011.
Fiscal year 2013 is also expected to end with a modest surplus, with the total general fund ending balance estimated at $20.7 million (14% of budgetary basis spending). These expected results reflect revenue and expenditure performance close to budget, with increased storm-related expenditures balanced out by lower insurance costs.
The fiscal year 2014 budget includes a use of surplus of about $1.6 million, reflecting increased staffing costs due to negotiated salary increases, the cost of increased pension ARC funding, and also management's desire to limit property tax increases. The town has outperformed budgeted expectations in recent years. In addition, the adopted budget figures do not reflect staff health insurance coverage changes implemented after budget adoption that are expected to result in a savings of about $1 million. Even with the budgeted $1.6 million draw-down, the fiscal year 2013 total ending balance would still be solid at about 12.6% of budgetary basis spending. Fitch expects that the town will continue to maintain reserve levels above policy targets.
MODERATE DEBT LEVELS; PENSION FUNDING A WEAKNESS
Overall net debt levels are moderate at $4,028 per capita and 2.3% of the town's estimated $6.3 billion tax base. The debt service burden represented an affordable 7% of operational expenditures in fiscal 2012 and combined debt service, other post-employment benefits (OPEB) payment and pension ARC costs as a percentage of operational spending are moderate at about 12%. The town's debt amortizes at an above-average rate of 67% within 10 years. Debt needs in the future are anticipated to be more moderate, as more sizable school and sewer projects near completion.
Police and town employee pension plans are just 62% and 27% funded, respectively, as of July 1, 2010 and a low 43% on a combined basis. Using Fitch's more conservative calculation with a 7% rate of return, the ratio drops to an estimated 40%. The combined unfunded liability totals $67 million as of July 1, 2010, or an affordable 1% of full market value. The town had historically funded less than 100% of the plans' ARC but has been increasing its pension contributions in recent years. Annual payments made in fiscal 2013 funded 52% of the police plan ARC and 84% of the town ARC. For fiscal year 2014, the town increased its contributions to 55% of the police plan ARC and 100% of the town ARC.
Low pension funding remains a credit concern to Fitch. However, management has shown some commitment to improving the funding position. In addition to increased contributions, management has been successful in moving certain employees into a newly adopted defined contribution plan and is negotiating with other employee groups to require new hires to be part of that new plan. The town has a very minimal OPEB liability as a majority of OPEB costs are employee-funded.
Additional information is available at 'www.fitchratings.com'.
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