NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings of the Town of Greenwich, CT's general obligation (GO) bonds and notes:
--$123.1 million GO bonds at 'AAA';
--Issuer Default Rating (IDR) at 'AAA';
--$60 million GO bond anticipation notes (BANs), issue of 2016, at 'F1+'.
The Rating Outlook is Stable.
SECURITY
The bonds and notes are general obligations of the town and are payable by the town's full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
The 'AAA' IDR and GO ratings reflect the town's notable financial flexibility and very low debt levels. Revenue growth prospects are solid, reflecting the town's ability to capture tax base growth driven by its desirability as a residential, office, and retail location. Carrying costs associated with debt service, pension, and other post-employment benefits (OPEB) are moderately low, despite rapid debt amortization. Fitch expects that these factors would enable the town to maintain financial stability, including adequate reserves, in a potential economic downturn. The 'F1+' short-term rating reflects Fitch's expectation for strong market access, given the city's superior long-term credit fundamentals.
Economic Resource Base
Greenwich is located in southwestern Connecticut, approximately 28 miles from New York City. The population, estimated at 62,695 in 2015, has been stable for a number of years. Greenwich is one of the most affluent communities in the nation, with an extremely high market value per capita. Many of the town's residents are members of the professional and business services sector who work locally, elsewhere in Fairfield County, or in New York City.
Revenue Framework: 'aaa' factor assessment
Property taxes are the primary source of revenue for the town. Solid revenue growth prospects incorporate the town's ability to capture property value appreciation in this desirable, built-out location. The town has unlimited legal taxing authority.
Expenditure Framework: 'aa' factor assessment
The natural pace of spending growth is expected to be close to or marginally above that of revenue. Carrying costs associated with debt service and retiree-related expenditures are modest and control over staffing, wages, and benefits is satisfactory.
Long-Term Liability Burden: 'aaa' factor assessment
Moderate intermediate-term debt plans, rapid debt amortization, and a modest unfunded pension liability will allow the town to maintain its currently low long-term liability burden.
Operating Performance: 'aaa' factor assessment
Financial operations have been strong and resilient, underscored by solid reserves, conservative budgeting, and superior inherent budgeting flexibility. Fitch believes that these factors, coupled with low revenue volatility, would allow the town to maintain a satisfactory safety margin in a moderate economic downturn.
RATING SENSITIVITIES
STRONG MANAGEMENT PRACTICES: The rating is sensitive to shifts in the town's strong financial management practices and maintenance of fundamental financial flexibility.
CREDIT PROFILE
The town benefits from an extraordinarily stable resource base. Its tax base is primarily residential, with a notable component that includes both office space and high end retail. The town's estimated market value of $46 billion, based on the fiscal 2017 grand list of $32 billion, is the largest of any Connecticut municipality. The median value of a home in the town is $1.4 million according to Zillow.com, supported by income levels nearly double that of the nation.
Revenue Framework
Property taxes comprise a majority of general fund revenues, about 84% in fiscal 2015. The town adjusts millage rates as needed to meet expenditure needs despite tax base fluctuations. Intergovernmental revenues that are subject to periodic shifts due to state budget decisions amount to a low percentage of the budget, at 8.1% of fiscal 2015 total revenues.
Fitch expects general fund revenue growth, absent policy action, to be in-line with inflation reflecting the market appreciation of properties in this built out town. The most recent revaluation of the grand list resulted in a 6% increase in the tax base over the past five years, an improvement from the tax base decline in the penultimate revaluation but well below the notable run-up prior to the Great Recession.
The town has an unlimited ability to raise revenues.
Expenditure Framework
Education, the town's largest expenditure, comprised around 42% of the town's fiscal 2015 expenditures, followed by public safety at 8.7% of expenditures.
Fitch expects the natural pace of spending growth to match or marginally exceed revenue growth. As with most local governments, spending growth will likely be near to slightly ahead of revenue growth. Fitch expects that the stable and wealthy population will not place undue demands on expenditures.
The town maintains a solid level of expenditure flexibility. Fiscal 2015 carrying costs, consisting of debt service, pension and OPEB payments, equaled 11.7% of governmental expenditures, even with the town's rapid amortization of debt service payments. The town budgeted full payment of the annual OPEB cost in fiscal 2016, well-above prior years' payments. The increased payment, signaling enhanced expenditure flexibility, will not noticeably inflate the town's carrying costs.
The town has adequate control over staffing, wages, and benefits. Management has the legal ability to reduce staff at any time if necessary, excluding employees of the Nathaniel Witherell nursing home. State statutes provide for binding arbitration of collective bargaining agreements but allow for a rejection of the decision by a two-thirds vote by the Board of Estimate and Taxation. Subsequently, the state appoints an arbitrator who must give priority consideration to the public interest and the financial capability of the employer.
The town maintains additional flexibility due to its notable pay-as-you-go capital funding, which at approximately $12.4 million in fiscal 2017 is equal to 2.9% of general fund spending.
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 is projecting to receive $86,446 (less than 1% of budgeted general fund revenues) from this grant in fiscal 2017. Fitch does not believe it will have a notable impact on its financial operations based on the town's historically conservative budget practices.
Preliminarily, the town is considering lowering its internal guidelines for annual budgetary increases from 2.75% to 2.5% in response to the state legislation.
Long-Term Liability Burden
Long-term liabilities for debt and pensions represent a low 2.9% of the very large personal income base. Town debt is net of sewer assessments used to support sewer-related GO debt. The city retires general fund supported debt in five years, per its policy, compared to a more standard repayment period of 20 years. Fitch expects the debt ratio to remain low after the planned borrowing over the next three fiscal years of $30 - $40 million annually.
The town's retirement plans, the Retirement System of the Town of Greenwich (the system) and the Police Benefit Fund, are closed to new hires. All full-time town employees who were hired prior to the closure dates participate in the plans, excluding teachers. The town's contribution consistently matches the actuarial requirement and the ratio of assets to liabilities is 75.9%. Board of Education teachers participate in the State Teacher's Retirement System, a cost-sharing pension plan, for which the state is solely responsible for all contributions.
Operating Performance
Healthy fund balances, low revenue volatility, and a high level of inherent budget flexibility create a strong capacity to maintain solid reserves, even if a moderate economic downturn were to result in revenue stress.
The town has traditionally budgeted conservatively and successfully absorbed past reductions in specific revenue streams, consistently generating net operating surpluses.
Fiscal 2015's $6.6 million surplus, equal to 1.6% of spending, increased the general fund's unrestricted fund balance to 12.1% of spending. Management reports that preliminarily, the unrestricted fund balance will increase by over $5 million, which Fitch views as consistent with historically positive operations.
The $430.7 million fiscal 2017 budget, 3.5% over the prior year, includes a $14.4 million fund balance appropriation for tax relief. Fitch expects that conservative budgeting and careful expenditure management will ultimately result in the maintenance of solid reserve levels.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
Applicable Criteria
Rating U.S. Public Finance Short-Term Debt (pub. 17 Nov 2015)
https://www.fitchratings.com/site/re/873508
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
https://www.fitchratings.com/site/re/879478
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012847
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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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