Fitch Affirms Ridgefield, CT's GO Bonds at 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed its 'AAA' rating on the following Town of Ridgefield, CT (the town) general obligation (GO) bonds:

--Approximately $40 million outstanding GO bonds, series 2007 and 2009.

In addition, Fitch has affirmed the following rating on the town:

--Long-Term Issuer Default Rating (IDR) at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the town and are backed by its full faith, credit, and unlimited taxing authority.

KEY RATING DRIVERS

The 'AAA' IDR and GO rating reflects the town's low long-term liability burden and exceptional financial operations, supported by high levels of revenue-raising authority and solid expenditure flexibility, which position it to withstand the challenges associated with a moderate economic downturn.

Economic Resource Base

Wealth levels are above average and unemployment levels are low relative to the state and nation. The affluent tax base is primarily residential and boasts a very high market value (MV) per capita. Town residents are predominantly employed in the professional and business services sector in Fairfield County, Westchester County, and New York City. The town's tax base and employment is moderately concentrated owing to the presence of the corporate headquarters of Boehringer-Ingelheim, Ltd. (BI), a privately owned German pharmaceuticals research, development and manufacturing firm.

Revenue Framework: 'aaa' factor assessment

Fitch expects growth prospects for revenues to be below historical levels but still outpace inflation as the region generally trends favorably to national economic performance. The bulk of operating revenues are derived from property taxes levied on a predominantly residential and affluent tax base. There is no limit to the property tax rate or levy.

Expenditure Framework: 'aa' factor assessment

The majority of the general fund budget pays for schools. Future spending growth is expected to remain in line with revenue performance, further constrained by a state-wide cap on spending growth. Fixed carrying costs are low and management maintains moderate control over wages and benefits in labor contracts, providing solid expenditure flexibility.

Long-Term Liability Burden: 'aaa' factor assessment

The town's long-term liability burden represents a modest share of resident personal income, owing to combination of exceptional resident wealth and conservative liabilities management.

Operating Performance: 'aaa' factor assessment

Generally conservative budgeting and steady, moderate tax rate increases have allowed revenues to keep pace with spending growth. Reserves have been steadily maintained at ample levels relative to scenario-estimated changes in revenue, and Fitch expects management to maintain reserves in future years.

RATING SENSITIVITIES

Management Practices: Fitch expects the ratings to remain stable in the absence of a shift in management practices and/or policy and resultant weakening of the town's long-term operating profile.

CREDIT PROFILE

The town is an affluent suburban community, located in northwestern Fairfield County on the New York border. Its 2015 population of approximately 25,200 is up 6% since 2007, comfortably outpacing state population growth over the same period. Tax base growth softened considerably during the recession, but recent revaluations indicate resumed growth, and MV per capita remains very high.

Revenue Framework

Property taxes are the town's main source of revenue, making up 85% of general fund revenues. State municipal aid accounts for a modest 9% of general fund sources, shielding the town from periods of volatility linked to state budgetary pressures and policy action. The natural pace of revenue growth was strong over the last decade, though future prospects have moderated, given slowed tax base growth and limited developable land. The town retains unlimited property tax revenue-raising authority.

The town's revenue has grown at an average annual rate of 4.1% between fiscals 2005 and 2014, outpacing both GDP and CPI, though strong growth was partly generated by increases in the millage rate. Tax base growth has been more modest, averaging 1.5% over this time. The most recent revaluation (effective fiscal 2013) reflects significant tax base contraction linked to recessionary housing and commercial property value declines, but growth appears to have resumed at a moderate pace. Zillow projects modest declines in residential home prices over the ensuring 12 months; however, new commercial and industrial development are expected to somewhat offset this weakness.

The town has independent legal ability to raise property taxes without limit. The annual budget is subject to voter approval, but proposals are presented on an appropriation basis, thereby ensuring sufficient revenues to meet voter-approved spending levels, and the town has a history of smooth budget approval.

Expenditure Framework

The town is responsible for the provision of public education, the cost of which is funded by a combination of local contributions and state aid. Spending increases have been manageable and the enactment of state legislation in fiscal 2018 is likely to further limit future spending growth. Low carrying costs and moderate control over labor costs provide a solid level of spending flexibility.

The bulk of the town's spending is related to education (66% of general fund expenditures) followed by general government operations (8%). Total spending has increased at a manageable pace in recent years; Fitch believes future spending will likely track revenues and inflation over time given limited drivers for local service demand.

The town maintains a solid level of spending flexibility owing largely to low costs for debt and retiree benefits at 11% of governmental fund spending. Debt service is the largest component of the fixed-charge metric (8.5% of governmental spending) and contribution requirements for the town's pension plans for general employees, firefighters, and police personnel are roughly 2%. Other post-employment benefits (OPEB) spending is minimal and the town has been making additional contributions above the normal cost to improve the OPEB funding level. Union contracts are subject to arbitration but a decision may be rejected by a two-thirds vote by town 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 employer.

State legislation was passed last year imposing a 2.5% 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 expects to be able to keep expenditure growth within this cap based upon recent years' performance.

Long-Term Liability Burden

The town's long-term liability burden represents a very modest share (2.1%) of resident personal income. Liabilities are constituted almost entirely of the town's rapidly amortizing direct debt obligations, with 86% of principal retired within 10 years. The town's conservative debt management practices and limited capital needs indicate that the burden will remain stable or decline in future years.

The town manages three single-employer defined benefit pension plans for general employees, firefighters, and police personnel. Plan funding is exceptionally strong with high asset to liability ratios in all three plans. OPEB does not represent a major burden on the local resource base.

Operating Performance

The town has maintained a high level of financial resilience, with reserves comfortably above Fitch's safety margin for an 'aaa' assessment, sufficient to weather the simulated revenue decline in a moderate economic downturn scenario. The town's superior level of inherent budget flexibility is representative of solid spending flexibility and unlimited revenue-raising authority, providing considerable ability to offset economic sensitivity.

Reserve levels remained strong throughout the recession, and the town has continued adding to its financial cushion with several years of modest surpluses. Unrestricted reserves equaled an ample 11.5% of spending in fiscal 2015, and fiscal 2016 (unaudited) figures indicate a modest surplus of approximately $400,000 (less than 1% of spending). The fiscal 2017 budget projects a manageable draw of approximately $1.9 million from unrestricted fund balance, mostly related to road improvements, reducing reserves to a still high 11% of fiscal 2017 budgeted spending. The town has historically maintained ample reserves and expects to remain at this level in future years.

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/gws/en/disclosure/solicitation?pr_id=1013027

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https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
George Stimola
Associate Director
+1-212-908-0770
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kevin Dolan
Director
+1-212-908-0538
or
Committee Chairperson
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
George Stimola
Associate Director
+1-212-908-0770
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kevin Dolan
Director
+1-212-908-0538
or
Committee Chairperson
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com