NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following town of Fairfield, Connecticut (the town) general obligation (GO) bonds:
--$11,500,000 Issue of 2014.
In addition, Fitch assigns a rating of 'F1+' to the town's $14,030,000 GO bond anticipation notes (BANs).
The bonds and notes are scheduled to sell competitively on July 8. Proceeds will be used to finance and refinance general purpose and school projects.
In addition, Fitch affirms the following ratings:
--Approximately $192 million outstanding GO bonds at 'AAA'.
The Rating Outlook is Stable.
Bonds and BANs are backed by the town's full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The town of Fairfield's sound operating results are the result of its strong financial management, prudent fiscal policies and conservative budgeting practices.
ABOVE-AVERAGE SOCIOECONOMIC INDICATORS: The local economy is diverse and positive economic indicators include very high income levels and low unemployment rates. The town benefits from its proximity to New York City, New Haven, Hartford and Stamford employment centers.
LOW LONG-TERM LIABILITIES: Overall debt levels are low to moderate with above-average par amortization. The town's debt service, pension payments and other post-employee benefit (OPEB) liabilities consume a relatively low percentage of general government spending.
MARKET ACCESS: The 'F1+' short-term rating reflects the strong credit characteristics of the town and Fitch's expectation for strong market access.
The rating is sensitive to shifts in fundamental credit characteristics of the town. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
The town is an affluent residential community located on the Long Island Sound in the southwestern part of the state about 50 miles north of New York City and 51 miles southwest of Hartford.
ABOVE-AVERAGE SOCIOECONOMIC INDICATORS
Many of the town's residents are professionals or executives who work in New York City or in neighboring cities and towns. Additionally, the town is home to Fairfield and Sacred Heart Universities and the headquarters of the General Electric Company. Fairfield's estimated market value of $15.6 billion for fiscal 2014 is equivalent to a very high $256,000 per capita. Building permit activity has picked up in the past two years and growth in the tax base is likely in the next five-year revaluation. The taxable assessed value (grand list) declined a manageable 10% in the last five-year revaluation, in fiscal 2011.
Income and wealth levels are very high with median family income at 171% and 225% of state and national levels, respectively. The poverty rate is a low 3.5%. Fairfield's unemployment rate of 5% (April 2014) is lower than the state's 6.6% rate. Over the past year the unemployment rate improved as a result of employment outpacing labor force growth.
STRONG FINANCIAL MANAGEMENT
The bulk of the town's revenues are derived from property taxes (86%) which have increased steadily as a result of tax rate increases. The tax base is very diverse, and tax collection rates are excellent.
Management has historically used conservative budgeting practices and manages its expenditures during the year to offset any unanticipated revenue shortfalls. For fiscal years 2012 and 2013 the town had general fund operating surpluses, after transfers, of $1.7 million and $2.1 million, respectively, reflecting conservative budgeting practices. Transfers are for paygo funding of capital projects, totaling $3.6 million in fiscal 2013. During fiscal 2013, the internal service fund had a $1.5 million operating surplus.
The general fund operating surplus increased the unrestricted fund balance to $18.8 million (6.5% of spending) from $16.7 million, and is in compliance with the town's 5% to 7% general fund balance policy. All of the town's fund balance is unrestricted.
For fiscal 2014, management projects an approximate $1.7 million increase in general fund balance. The town had budgeted an increase in reserves of $675,000; the other sources of the operating surplus include favorable variances in property tax collections, investment income and state revenue.
FISCAL 2015 BUDGET CONTINUES TO GROW RESERVE LEVELS
The town's fiscal 2015 budget includes a 1.96% mill rate increase and a $500,000 appropriation to unassigned fund balance. The budget fully funds the OPEB actuarially required contribution (ARC), a practice instituted in fiscal 2008 that Fitch believes is further indication of financial flexibility.
MANAGEABLE DEBT LEVELS
The town's debt levels remain low to moderate with overall debt-to-market value at 1.4% and debt per capita at $3,568. Amortization rates are strong with 73% of par maturing in 10 years. Moderate biannual long-term borrowing is planned, which given the rapid amortization is not expected to increase the debt profile.
After a period of growth, school enrollment has stabilized and management projects continued stable enrollment through 2016. The town is now planning on moderate expansions to existing buildings so as to reduce portables acquired to accommodate the enrollment growth. The state of Connecticut provides assistance for school building projects and the town estimates receiving 25% in reimbursement for eligible project costs.
FAVORABLE PENSION AND OPEB POSITION
Pension funded levels are above-average with the town administered police and fire plan and town employee plan funded at 89% and 85%, respectively, as of July 1, 2013. The plans assume a 7.5% investment rate of return; the Fitch adjusted funded ratios (7% return) are an estimated 81% and 84%, respectively. Actuarial valuations are done annually, enhancing the town's ability to monitor and adjust the funding of the plans. General employees contribute 4% of their earnings toward pensions and police and fire contribute between 2.5% and 4.5%. The funded ratios declined in recent years; however, the plans are expected to achieve 95% funding by 2018.
The town's unfunded OPEB liabilities were $106 million for police, fire and town employees and $25 million for the town's board of education as of July 1, 2012. The practice of fully funding the OPEB required contributions, as opposed to the more typical paygo funding, has kept the unfunded liability relatively stable. The town has established two trusts for town police and fire OPEB, with total assets of $10.8 million as of June 30, 2013. Police and fire contribute 1.5% of their salary towards OPEB. The town is considering health insurance modifications to contain the upward trajectory of health insurance and OPEB costs.
Total carrying costs, debt service, required pension and OPEB payments represent a moderate 11.8% of fiscal 2013 general government spending relative to other U.S. local governments.
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, 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