NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on the city of Norwalk, CT's (the city) general obligation (GO) bonds:
--$15,000,000 series 2014 rated 'AAA'.
The bonds are scheduled to sell competitively on Aug. 5. Proceeds are being used to support various capital improvements.
In addition, Fitch affirms its 'AAA' rating on the city's following outstanding bonds:
--$84 million GO bonds, series 2009E; series 2010E, series 2010F, series 2011B, series 2012B, series 2013.
The Rating Outlook is Stable.
SECURITY
The bonds are backed by the city's full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: Financial flexibility continues to be ample with satisfactory fund balance levels as a result of conservative budgeting practices and steady tax rate increases. Sound financial policies underscore the city's prudent financial management.
SOUND ECONOMIC PROFILE: The city's economy benefits from its proximity to New York City and major Connecticut labor centers. Healthcare, retail, and financial and professional services have a large presence in the local economy. Wealth levels exceed state and national averages.
LOW DEBT BURDEN: Overall debt levels are low and expected to remain so given the city's moderate additional debt plans, rapid par amortization, and prudent debt policies.
MANAGEABLE OPEB AND PENSION COSTS: Pension and OPEB obligations are well-managed, as evidenced by annual contributions to an OPEB trust and full funding of actuarially-based pension contributions. Enacted pension reforms should contain the trajectory of pension costs.
RATING SENSITIVITIES
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices and maintenance of reserves within policy levels. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
Norwalk is located on the Long Island Sound, roughly 50 miles northeast of New York City, near several other Connecticut cities, including Stamford, Bridgeport and New Haven. Its 2013 population of 87,776 is up 5.8% since 2000.
HIGH WEALTH AND DIVERSE ECONOMY
Health care, financial and professional services, and retail sectors drive the city's local economy. The city's largest private employer, Norwalk Hospital, a teaching facility for the Yale School of Medicine, is currently expanding. Though little vacant land remains within the city, mixed-use redevelopment is focused on the urban corridors. Momentum appears positive. Building permit valuations have exceeded prerecession levels in each of the past two years boding well for future tax base growth.
Market value per capita is a high $192,444 based on the fiscal 2015 market value (MV) of $16.89 billion. While property values declined 7.7% in the tax base revaluation for fiscal 2015, Norwalk faired better than neighboring communities' revaluations. Other income and wealth levels are high with median household income at 109% and 142% of state and national levels, respectively. Poverty is 9.4%, well below the national rate of 14.9%. Norwalk's unemployment rate of 5.8% (May 2014) is lower than the state and national averages and an improvement from 6.5% a year ago. Over the past year employment growth was notably double the national rate.
STRONG FINANCIAL MANAGEMENT
The bulk of the city's revenues are derived from property taxes (84% of fiscal 2013 general fund revenues), which have increased steadily the last five years. The tax base is diverse and tax collection rates are strong, bolstered by biannual tax sales.
Management budgets conservatively and in fiscal 2013 both general fund revenues and expenditures outperformed budget. The city closed the year with a $2.1 million general fund operating surplus, equal to .7% of spending. The surplus increased the town's unrestricted general fund balance (committed, assigned and unassigned) to $33.4 million or a sound 10 % of expenditures, remaining well within its formal fund balance policy of 5%-10% of budgeted revenues. Fitch considers this policy level adequate given the relative stability of the city's revenue base and consistent financial performance.
FISCAL 2014 ESSENTIALLY BALANCED
Norwalk's fiscal 2014 estimated expenditures are up by 5% over fiscal 2013, driven by growth in education expenditures and pension contributions. The city largely funded expenditure growth with a 5% increase in the property tax revenue. City expectations to outperform budget appear reasonable given favorable revenue performance, primarily strong building permit collections and state aid in excess of budget. Projections for fiscal-end 2014 indicate the city will end the year with a minimal use of reserves.
FISCAL 2015 BUDGET IS CONSERVATIVE
The city's $317.5 million fiscal 2015 budget is up by a moderate $5 million or 1.6% from fiscal 2014 estimates. The four-year revaluation resulted in a decline in taxable values but the city increased the levy by 3.2% to insulate revenues. Pension contributions and education remain the primary cost drivers. The city continues the historical practice of conservatively budgeting for contingencies; the fiscal 2015 $1.5 million contingency appropriation is equivalent to 0.5% of total expenditures.
LOW-RISK DEBT PROFILE
Fitch expects debt levels to remain low given the moderate borrowing plans and rapid amortization of existing debt. Overall debt is $2,701 per capita and 1.4% of market value. Amortization of outstanding principal is rapid with 77% retired in 10 years. The fiscal 2015-2019 capital improvement plan totals a moderate $108 million and proposes annual debt financing, focused on public works and school investments.
PRUDENT MANAGEMENT OF OTHER LONG-TERM OBLIGATIONS
The city continues to fund post-employment health care benefits (OPEB) above annual pay-go levels. The fiscal 2103 contribution was $16.5 million relative to benefit and administrative expenses of $11.7. An irrevocable trust was established in fiscal 2007 with assets of $37 million at the close of fiscal 2013. The unfunded accrued liability was $245 million as of July 1, 2013. Fitch believes OPEB will not likely be a challenge for operations given the city's fiscal 90% funding of the OPEB ARC.
City charter requires the city to fully fund the annual actuarially required contributions, a practice Fitch views favorably. The city's four pension plans are funded at a Fitch-estimated 73% on an aggregate level, using a 7% investment return rate. While this funding level is in the low side of mid-range, the requirement of full ARC funding, recent pension reforms and prudent actuarial amortization assumption should lead to gradual improvement in the funded ratios. The total unfunded liability as of the July 1, 2013 actuarial report was a $94 million, or 2.2% of the market value of real property. The city's total fiscal 2013 carrying costs for debt service, pension and current OPEB contributions were a moderate 13% of governmental spending.
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, HIS 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
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842099
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