NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to the Town of Greenwich, CT's (the town) general obligation (GO) bonds and notes:
--$40 million GO bonds, issue of 2015 at 'AAA';
--$80 million bond anticipation notes (BANs), issue of 2015 at 'F1+'.
The bonds and BANs are being issued to permanently refinance a portion of outstanding BANs and to finance capital improvements. The bonds and BANs are scheduled to sell competitively on January 15.
In addition, Fitch affirms its rating on the following outstanding obligations of the town:
--$87.1 million GO bonds at 'AAA';
--$85 million GO BANs, issue of 2014 at 'F1+'.
The Rating Outlook is Stable.
SECURITY
The bonds and notes are general obligations of the town and are secured by the town's full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
SUPERIOR ECONOMIC PROFILE: Superior wealth levels and a breadth of regional employment opportunities underscore Greenwich's economy, below-average unemployment rate and exceptionally high market value per capita.
SOPHISTICATED FINANCIAL MANAGEMENT: The town's historical and current use of prudent and conservative management practices supports its strong financial profile.
STRONG BALANCE SHEET RESOURCES: A history of surplus operations has increased the town's general fund reserves to ample levels and, combined with ancillary funds, provide for a strong level of financial flexibility.
MANAGEABLE LONG-TERM LIABILITIES: Debt ratios remain moderate-to-low but are expected to increase slightly as a result of future debt contemplated per the town's 15-year capital improvement plan.
EXPECTATIONS FOR STRONG MARKET ACCESS: The 'F1+' short-term rating reflects Fitch's expectation for strong market access given Greenwich's superior long-term credit fundamentals.
RATING SENSITIVITIES
SOUND FINANCES DRIVE THE STABLE OUTLOOK: The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that these shifts are unlikely given the town's strong financial management.
CREDIT PROFILE
Greenwich is located in southwestern Connecticut approximately 28 miles from New York City and had an estimated population of 62,396 in 2013.
ABOVE-AVERAGE DEMOGRAPHIC PROFILE
Greenwich's wealth levels are among the highest in the nation. Many of the town's residents are executives and professionals who have easy access to the New York City, Greenwich and southern Fairfield county labor markets. The unemployment rate of 4.2% for November 2014 remains below the state (6.2%) and national (5.5%) averages.
The town's estimated market value of $44.3 billion, based on a 2013 grand list value of $31 billion, is up 0.3% from the prior year and is the largest of any Connecticut municipality. The town is predominantly residential (80% of value), with a small commercial real estate presence representing office space and high-end retail. According to management, the average home price in Greenwich was $2.1 million in 2014, up 12% from the prior year, further evidencing the town's high wealth. Market value per capita is an impressive $709,425.
FINANCIAL MANAGEMENT IS STRONG
The town's financial strength is derived from its deep, stable resources as well as strong financial management and conservative budgeting. In fiscal 2008 the town moved from a modified pay-as-you-go method of financing capital projects through general fund borrowing to a more traditional capital borrowing practice. As a result, its negative unrestricted fund balance position reversed beginning in fiscal 2011.
In fiscal 2014, the town's general fund experienced an operating surplus of $12 million after transfers increasing unrestricted fund balance to $47.3 million or a sound 12.3% of spending. Fiscal 2014 was the seventh consecutive year with an operating surplus. Contributing to the surplus results were positive expenditure variances from conservative budget projections and employee cost savings due to maintenance of vacated positions for both general town and school departments. On the revenue side, property tax revenues, building permits and other revenues were stronger than expected.
Greenwich also maintains a working fund balance in its risk reserve fund and capital non-recurring fund to help subsidize any unanticipated legal costs as well as pay-as-you-go capital costs. The balances in these funds combined are $8.9 million at fiscal end 2014, equating to 2.3% of general fund spending.
The town's fiscal 2015 operating budget increased spending by 4.1%, compared to 3.4% in fiscal 2014. The primary drivers were continued increases in employee benefit costs, education, and debt service. The budget also includes a $12.2 million contribution to the capital projects fund and $500,000 to its risk reserve fund. Year-to-date operations are trending well when compared to the budget. If this trend continues, management expects to record another surplus by fiscal year-end. Fitch finds this projection reasonable, based on historical results and management's close monitoring of expenditures.
LOW-TO-MODERATE DEBT LEVELS
The town's credit profile benefits from a history of pay-as-you-go capital financing, which has helped to maintain a manageable debt burden. Town debt, net of sewer assessments used to support sewer-related GO debt, is moderate on a per capita basis at $3,109, but extremely low at 0.4% of the very large market value. Fitch expects that debt ratios will increase moderately as a result of the town's expected borrowing over the next couple of years to meet its capital improvement plans. Debt amortizes rapidly, with all general fund-supported debt retired in five years, as per town policy. Total town debt retires at an above-average 88% rate in 10 years.
MANAGEABLE LONG-TERM EMPLOYEE RETIREMENT COSTS
The town's single-employer pension plan had historically been fully funded but funding levels have declined as a result of significant market losses in 2008 and 2009 and management's decision to gradually reduce the expected investment rate of return from 8.5% to 7% for fiscal 2015. The unfunded liability totaled $140.9 million at July 1, 2014, equivalent to an estimated 70% funding level based on Fitch's conservative 7% rate of return.
The town's approach to managing its pension, including closing the pension plan to all newly hired non-public safety employees and its history of paying 100% of its annual required contribution (ARC) as required by the town charter, should improve funding levels and decrease contributions over time. The town's pension ARC totaled $19.8 million in fiscal 2014, representing a modest 4.1% of governmental spending. The pension ARC for fiscal 2015 is projected to increase to $22.7 million.
The town's credit profile further benefits from forward-funding of its other post-employment benefit (OPEB) liability for the past 10 years and the establishment of an irrevocable trust in 2008. The trust had assets of $18.1 million and was 24.1% funded as of July 1, 2013. The town's carrying costs for its pension ARC, OPEB contributions and annual debt service were a manageable 10% of total governmental spending in fiscal 2014.
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, Underwriter, Bond Counsel, Underwriter Counsel, and Trustee.
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=967816
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