Fitch Affirms Regional School District No. 5, CT's GOs at 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has taken the following rating action on Regional School District No. 5, CT's (the district) general obligation (GO) bonds:

--6.1 million outstanding GO bonds, series 2010B affirmed at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the district and, severally, of the member towns of Bethany, Orange and Woodbridge, CT. The district has no independent taxing power, but the member towns have the authority to levy property taxes without limit to meet this general obligation.

KEY RATING DRIVERS

STABLE FINANCES DESPITE RESTRICTIONS: The district's operations are tightly balanced, supported by remittances of property tax payments from member towns. Management has been active in maintaining expenditures at appropriate levels to ensure sound operations. Financial flexibility is constrained due to the inability of the district to levy taxes and state statutes that limit the size of the school district's reserves.

SOUND MEMBER TOWN FINANCES; GOOD DISTRICT/TOWN COOPERATION: The member towns' sound financial positions support stable district operations. Recent years have featured good cooperation between the member towns and the district, resulting in overall voter support for annual district budgets.

MEMBER TOWNS' STRONG ECONOMIC PROFILE: Economic indicators for all three member towns are strong. Town wealth levels are high, and unemployment rates are well below state and national levels.

MODERATE DEBT LOAD: District debt levels are generally moderate with rapid amortization. Total expenditure levels associated with debt service, pension contributions, and other post-employment benefit (OPEB) payments are manageable.

RATING SENSITIVITIES

The rating is sensitive to shifts in member towns' fundamental credit characteristics. A history of strong financial operations and economic indicators suggests continued rating stability.

CREDIT PROFILE

The district, formed in 1953, is located northwest of the city of New Haven, CT and is comprised of three towns - Bethany, Orange, and Woodbridge. The district serves grades seven through 12, with one senior high school and two middle schools; it has an estimated population of 28,520, an increase of about 4% since 2000. School enrollment, however, has been declining annually recently, from less than 1% to about 3% in the last four years. Management projects continued moderate declines in the near term.

FINANCES SUPPORTED BY SOUND MANAGEMENT AND TOWNS' FINANCIAL POSITIONS

The district maintains sound financial operations. It derives about 95% of its general fund revenues from its assessments charged to member towns proportionately, based on the number of enrolled students. The district reported a fiscal 2013 general fund unrestricted balance of $1.1 million or 2.2% of spending. State statutes require operating surpluses to be either refunded or credited to member towns, or reserved for capital expenses, sick and severance costs, or other post-employment benefits (OPEB), thus limiting the extent of overall district reserve levels.

Fiscal 2014 expenditure growth (3.1% current estimates vs. fiscal 2013 actuals) and fiscal 2015 budgeted growth (3.8% vs. fiscal 2014 current estimates) has been higher than recent years, driven largely by salary and benefit increases and also by increased special education tuition and transportation costs. The salary increases follow salary freezes in fiscal 2013.

The district has been active in controlling other areas of spending to limit annual budget growth. Recent savings measures have included staffing cuts, reductions in discretionary spending and lower debt service costs due to debt refunding. The district estimates a modest fiscal 2014 budgetary basis surplus, after a $586,655 transfer to the Self-Insurance Reserve Fund, of $266,000, which is set aside for use in the fiscal 2015 budget. The fiscal 2015 budget is balanced and includes a $150,000 contingency set aside, which is typical of the district's budgeting practices.

The district's three member towns are chiefly residential. The well-educated area work force is employed largely in professional fields, as reflected in the very high income levels and consistently below-average unemployment rates. The strong financial positions of the three member towns support district financial stability. The towns' financial operations consistently feature unrestricted general fund balances exceeding 10% of spending, as well as strong taxpayer collection rates and diversified tax bases.

In addition, good cooperation between the district and member towns is demonstrated by support for the district's annual budget. District voters have approved the budget on the first ballot for the past nine years. A formal finance committee consisting of board of education members and representatives from each of the member towns facilitates communication and cooperation between the agencies.

MODERATE DEBT LEVELS

Overall debt levels, including district and member town debt, are moderate, with debt per capita at $3,080 in fiscal 2013 and debt to market value at 1.9%. District debt amortizes rapidly (80% within 10 years) and management reports no near-term additional bonding plans. Annual district debt service as a percentage of governmental spending is manageable at about 11% in fiscal 2013.

District employees excluding teachers are covered by the Amity Regional School District No. 5 single-employer, defined benefit pension plan. The district makes 100% of its annual required contributions (ARC) to the plan. These payments have increased as the plan's funded ratio has declined to 63% as of July 1, 2013 (or 57% using Fitch's more conservative 7% discount rate assumption).

District teachers participate in the Connecticut State Teachers Retirement System. The district has no legal obligation and does not contribute to the state plan. The district created an OPEB trust fund in January 2007 which was valued at $1.6 million as of June 30, 2013, or 23% of the total liability. Total carrying costs, including debt service, pension and OPEB payments, were manageable at about 13% of governmental spending in fiscal 2013.

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

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=898554

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Contacts

Fitch Ratings
Primary Analyst
Maria Coritsidis
Analytical Consultant
+1-212-908-0514
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Kevin Dolan
+1-212-908-0538
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Maria Coritsidis
Analytical Consultant
+1-212-908-0514
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Kevin Dolan
+1-212-908-0538
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com