Fitch Upgrades Bristol CT's IDR and GO Bond Rating to 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has upgraded the following ratings for Bristol, CT (the city) to 'AAA' from 'AA+':

--$53.6 million general obligation (GO) bonds;

-- Issuer Default Rating (IDR).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the city's full faith and credit and unlimited taxing authority.

KEY RATING DRIVERS

The upgrade to 'AAA' reflects the application of Fitch's revised criteria for U.S. state and local governments, which was released on April 18, 2016. The IDR is driven by Fitch's expectation of continued strong revenue raising ability, a low long-term liability burden and strong operating performance during both times of economic downturn and economic recovery.

Economic Resource Base

Bristol is a suburban city located 20 miles southwest of the state capital city of Hartford. The city's population has been stable, numbering between 60,000 and 61,000 since 2008. The broad-based economy is anchored by ESPN, which employs more than 4,000 people.

Revenue Framework: 'aaa' factor assessment

Property taxes make up more than half of general fund revenues and the city has ample revenue raising capacity due to its unlimited legal taxing authority. Fitch expects future general fund revenues to slightly lag the compound annual growth rate of the past ten years, which was above both GDP and CPI.

Expenditure Framework: 'aa' factor assessment

The city has adequate control over headcount and wages and has shown spending flexibility during economic downturns. Carrying costs are a low proportion of governmental spending, providing additional expenditure flexibility.

Long-Term Liability Burden: 'aaa' factor assessment

Fitch expects the long-term liability burden to remain low as a result of considerable pay-go financing for capital needs, well-funded pensions and above-average amortization.

Operating Performance: 'aaa' factor assessment

Fitch expects the city to manage through periods of economic decline while maintaining a sound financial cushion on the basis of its superior level of budgetary flexibility and history of careful financial management.

RATING SENSITIVITIES

Strong management practices: The rating is sensitive to shifts in the city's strong financial management practices and maintenance of fundamental financial flexibility.

CREDIT PROFILE

Personal income levels mirror the nation as a whole but are below the level of the wealthy state. Top 10 taxpayers within the city comprise nearly 12% of taxable assessed value (TAV) with ESPN having the largest share by far at nearly 6%. ESPN has expanded considerably in recent years, but the remainder of the top 10 taxpayers shows little concentration, with retail, utilities and a theme park all represented. The city also benefits from recent investments in manufacturing and the upcoming construction of a 120,000 square foot downtown medical facility by Bristol Hospital, already the city's second largest employer,

Revenue Framework

The city's primary source of revenue is property tax, which accounts for more than half of general fund revenues. State aid is the next largest source of revenue.

Revenues have risen at a 10-year compound annual growth rate above CPI and slightly above GDP. As a result of various tax rate actions being included in this growth rate, Fitch expects natural growth prospects for revenues to slightly lag the historical trend, but still preform above CPI. Recent investments in manufacturing, healthcare and brownfield redevelopment assure tax base growth beyond value appreciation. The city has unlimited legal taxing authority over residential, personal and commercial property.

Expenditure Framework

Education and public safety represent the largest shares of expenditures, at roughly 54% and 12%, respectively. Steady population trends have allowed the city to keep up with service demands without considerable budgetary pressures.

Fitch expects the pace of spending growth to be in line revenue growth, reflecting historical trends and ongoing revenue expectations. Stable population in recent years has resulted in manageable service demands.

The city has the ability to reduce expenses tied to its services, namely through the reduction of non-public safety staff at any time if necessary. Union contracts are subject to arbitration but a decision may be rejected by a two-thirds vote by city council. A new arbitration panel would then be appointed by the state and their subsequent decisions are required to take into consideration the financial capability of the city.

Carrying costs for debt service, pension and other post-employment benefits represent a low 5.7% of fiscal 2015 spending. Two of the city's three pension plans have assets that are significantly higher than the respective plan's liabilities, providing additional budgetary flexibility through the ability to cut appropriations without damaging the health of the plans.

Similar to most Connecticut municipalities, education expenses make up the majority of the budget for the city. A minimum budgeting rule restricts the city's ability to cut education expenses from the year prior, somewhat restricting budgetary flexibility.

State legislation was passed last year imposing a 2.5% spending cap on local governments' general spending growth budgets beginning in fiscal 2018. The cap limits annual increases to 2.5% over the spending level for the previous fiscal year, or the rate of inflation, whichever is greater. The cap excludes expenditures for debt service, special education, court orders and arbitration awards. There is an exception for major disasters provided there is a presidential or gubernatorial declaration of emergency. Towns and cities that increase their general budget expenditures over the previous fiscal year by an amount that exceeds this cap receive a reduced municipal revenue-sharing grant. The reduction is equal to 50 cents for every dollar the local government spends over the cap. Management intends to comply with the cap, dependent on the final implementation by the state. Fitch does not believe it will have a notable impact on its financial operations based on the city's historically stable operating results and conservative budget practices.

Long-Term Liability Burden

Bristol's long-term liability burden is low at 2.2% of personal income and is made up almost entirely of the city's rapidly amortizing debt. Pensions do not present a pressure, as the city maintains three pension plans for general employees, police and fire with Fitch-adjusted asset-to-liability ratios of 99%, 170% and 244%, respectively.

The city currently has approximately $62 million in authorized but unissued debt and plans to stagger its issuance over fiscal 2017 and fiscal 2018. Fitch expects rapid amortization of outstanding debt paired with an already low debt burden to keep the city's long-term liability burden low throughout near-term borrowing plans.

Operating Performance

Fitch expects the city will continue to maintain strong reserve levels throughout an economic cycle given its historically stable revenue performance, high degree of inherent budget flexibility, unlimited taxing authority and demonstrated commitment to maintaining sound reserves levels of roughly 15% of revenues.

The city has experienced sound revenue growth in recent years and has achieved a modest surplus in the past six fiscal years. Management expects a roughly $1 million surplus for fiscal 2016, pending possible additional special education costs to be borne by the city.

The fiscal 2017 general fund budget is up 2.3% from the year prior. The budget includes pay-go for public works vehicle replacement that was not originally identified in the capital improvement plan.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/site/re/879478

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012767

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012767

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Contacts

Fitch Ratings
Primary Analyst
Jeremy Stull, +1-646-582-4981
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
George Stimola, +1-212-908-0770
Associate Director
or
Committee Chairperson
Barbara Ruth Rosenberg, +1-212-908-0731
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jeremy Stull, +1-646-582-4981
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
George Stimola, +1-212-908-0770
Associate Director
or
Committee Chairperson
Barbara Ruth Rosenberg, +1-212-908-0731
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com