Fitch Rates Guilford, CT's GO Bonds 'AA+' and BANs 'F1+'; Outlook Stable

CHICAGO--()--Fitch Ratings assigns the following rating to the town of Guilford, CT (the town) general obligation (GO) bonds and bond anticipation notes (BANs):

--$26 million GO bonds, series 2014, 'AA+';

--$40 million BANs 2014, 'F1+'.

The bonds and notes are scheduled for competitive sale on August 4.

In addition, Fitch affirms the following ratings:

--$16.5 million outstanding GO bonds, series 2010 at 'AA+';

--$17.2 million outstanding GO refunding bonds series 2012A at 'AA+'.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

HEALTHY FINANCIAL PROFILE: Management's prudent budgeting practices support Guilford's improved level of reserves and overall financial flexibility.

STRONG SOCIOECONOMIC METRICS: The town's highly skilled labor force drives above-average wealth levels, high market value per capita and low unemployment rates.

INCREASING DEBT PROFILE: Debt ratios have risen with this issue as Guilford finances its new high school construction. Ratios are expected to rise slightly as financing is completed, but should remain moderate. Annual debt costs remain manageable as a percentage of spending. Amortization rates are average.

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

STRONG MARKET ACCESS: The 'F1+' short-term rating corresponds to the town's long-term GO bond rating and reflects Fitch's expectation for strong market access.

RATING SENSITIVITIES

PRUDENT FISCAL MANAGEMENT: Management's ability to manage balanced budgets and maintain adequate reserves in spite of an increasing debt load is a key rating factor.

CREDIT PROFILE

STRONG SOCIOECONOMIC PROFILE

Guilford is an affluent residential community located in New Haven County about 90 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.

The town underwent a statutorily required five-year property revaluation effective Oct. 1, 2013, which resulted in a decline in assessed values of 12.9%. The decline primarily reflects a softening of housing values over the five-year period. This decline is somewhat moderate compared to other locales in the state rated by Fitch.

Income and wealth levels are very high, with the town's median household income and per capita income equivalent to 181% and 183% of national averages, respectively. Guilford's unemployment rate of 5.1% for May 2014 is lower than both state and national levels, at 7.8% and 7.4% respectively. Market value per capita is a high $194,000 based on the town's fiscal 2015 market value of $4.4 billion.

GROWTH IN RESERVES IMPROVES FINANCIAL PROFILE

Guilford has experienced positive financial results the last three fiscal years, helping improve reserve levels after several consecutive years of drawdowns on reserves. Annual increases in the tax levy have led to continued revenue growth sufficient to cover expenditures. The fiscal 2013 net operating surplus of $1.5 million (1.4% of spending) stemmed from positive revenue and expenditure variances due to conservative budget practices. The unrestricted fund balance increased to $6.6 million, or a sound 7.5% of general fund spending and transfers out. Approximately $2 million in reserves held in funds outside the general fund (land acquisition, road repair and recreation fund) provide for additional financial flexibility.

The town's reserve fund policy requires maintenance of unassigned general fund reserves within 5%-10% of general fund revenues. The policy was formally approved in October 2010 and the town has been in compliance since fiscal year-end 2011.

POSITIVE RESULTS PROJECTED FOR FISCAL 2014

The fiscal 2014 budget of $85 million was up 2.6% compared to the original fiscal 2013 budget. The biggest drivers were education, pension and employee costs. The budget includes $0.8 million for capital outlay purposes (up 39%). Management estimates a $1 million budgetary surplus, again reflective of positive revenue and expenditure variances in major areas. Property tax revenues accounted for a high 93% of general fund revenues while intergovernmental support accounted for a low 4%. Tax collections have consistently exceeded a strong 99% rate.

FISCAL 2015 BUDGET SHOWS MODERATE INCREASE

The fiscal 2015 budget remains conservative. The total budget of $88 million is up 3.1% compared to the prior year and includes a 3.9% millage rate increase, partially reflecting the decline in assessed values due to the revaluation. Increases in property tax revenues of $2.6 million are expected to offset budgeted increases in education and employee costs. The town did not appropriate any fund balance, which is consistent with its reserve fund policy. The budget includes $856,000 in pay-as-you-go capital improvements, a slight increase from last year.

MANAGEABLE LONG-TERM OBLIGATIONS

The town's overall debt levels are moderate at 2.45% of market value and debt per capita equal to $4,569. Amortization rates are moderate with 53% of par maturing in 10 years. Annual debt service costs equated to a moderate 4.6% of fiscal 2013 spending and 4.2% of the fiscal 2015 budget. Debt levels have risen with this issuance due to the town's successful voter initiative for the construction of a new high school building resulting in an anticipated total $64 million of new issue borrowing. Future borrowing totaling $14 million for the high school and an additional $11 million in authorized but unissued debt is expected over the next three fiscal years. The town's five-year capital improvement plan through fiscal 2019 totals $34 million and assumes $28 million in additional borrowing. Fitch expects debt levels to remain moderate, but on the higher end of the median among other Fitch-rated issuers in the same rating category.

The town maintains three pension plans, which have been well-funded historically. Pension costs for the three plans for fiscal 2015 are budgeted at $3.6 million and represent a manageable 4.3% of the total fiscal 2015 budget. As of July 1, 2013, the combined funded ratio is 84%. The unfunded liability is a manageable $8.4 million using the town's 7% investment rate of return.

The unfunded OPEB liability is low at $30.7 million as of July 1, 2011. Approximately 84% of this amount represents an implicit rate subsidy, as school department retirees are responsible for their own healthcare premiums. Fitch does not expect pension and OPEB costs to pressure the credit in the near term.

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, 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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842482

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Contacts

Fitch Ratings
Primary Analyst
Kevin Dolan
Director
212-908-0538
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Patricia McGuigan
Director
212-908-0675
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Kevin Dolan
Director
212-908-0538
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Patricia McGuigan
Director
212-908-0675
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com