Fitch Affirms Nashua, New Hampshire's GO Bonds at 'AAA'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms its 'AAA' rating on the following City of Nashua, New Hampshire's (the city) outstanding general obligation (GO) bonds:
--$4.2 million, GO capital improvement bonds, series 2010.
--$11.4 million, GO capital improvement bonds, series 2011;
--$143.9 million, GO Pennichuck Corporation acquisition bonds (taxable);
--$20.8 million, GO refunding bonds, series 2012; and
--$21.2 million GO bonds, series 2013.
The Rating Outlook is Stable.
The bonds are unlimited tax general obligations of the city.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The city's management team continues to manage operating expenditures and maintain strong fund balances in the context of voter-approved spending limitations.
DIVERSE AND EXPANDING ECONOMIC BASE: The city's economy continues to see growth and development and is a key center within the state for business and government.
ABOVE-AVERAGE SOCIOECONOMIC FACTORS: The local economy is diverse with good wealth indicators and below-average unemployment rates.
LOW DEBT LEVELS; MANAGEABLE FUTURE RETIREE COSTS: The city's overall net debt burden is low and overall carrying costs are manageable. Amortization of general fund debt is very rapid.
The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices and maintenance of strong levels of reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The city is located on the southern border of the state of New Hampshire, 34 miles northwest of Boston, and has a 2011 population of 86,840.
ABOVE-AVERAGE SOCIOECONOMIC FACTORS
The local economy serves as a regional retail hub with two very large shopping malls providing tax-free shopping for New Englanders. The city has emerged as a regional center for medical services and is home to a diverse group of international companies including Oracle, Dell, Fidelity Investments, and BAE Systems. The city has two industrial parks and is experiencing continued new development and expansion activity.
The city's demographics are positive, with wealth levels exceeding both state and national averages. Unemployment levels decreased to 5.5% as of December 2013 from 6% a year prior. The city's population of 86,840 has remained relatively flat since 2000.
The city's 2009 revaluation resulted in a 5% decline in state equalized assessed value (AV) for fiscal 2010. The revaluation performed in 2012 resulted in additional declines of 3.6% even though new development has been occurring in the city. Management is projecting moderate growth of 0.5% to 1.2% over the next 2-3 years. Top 10 taxpayers represent a modest 9% of AV.
A decline in AV does not affect the city's ability to raise its tax rate. However, there is a statutory cap on the city's total appropriations. Annual appropriations cannot exceed the three-year average of the Northeast Region CPI percentage over the previous year's budget, in accordance with the voter-approved Budget Control Charter Amendment passed in 1993. An exemption of this appropriation limit is permitted for all capital expenditures and bonded debt with a two-thirds vote from the city's board of aldermen.
STRONG FINANCIAL MANAGEMENT
The city has managed rising employee salary and benefits costs through moderate annual tax increases and cost control measures. Property taxes, represented 74% of fiscal 2013 general fund revenues, have been increased responsibly and were below the budget cap which was 2%, 1.7% and 2.3% of the prior year's levy in fiscal 2012, 2013 and 2014, respectively. The city continued its typical practice of appropriating a portion of fund balance to help offset tax increases, budgeting $4.3 million in fiscals 2013 and 2014.
For fiscal 2013 the city reported a budgetary surplus of $4.8 million and its unassigned general fund balance increased by $629,000. A combination of better revenues across many areas and lower departmental costs due to conservative budgeting contributed to the surplus. Overall unrestricted general fund balance declined by $1.7 million to $47.3 million (a sound 19.3% of spending), reflecting the use of committed reserves for school capital projects.
The city prudently continues to include in its operating budget contributions to its capital reserve funds to support equipment and fleet replacements and other city and school improvements. The fiscal 2013 budget included $2.3 million in contributions towards the purchase of new natural gas powered vehicles for the city's public works and solid waste departments.
FISCAL 2014 BUDGET
For fiscal 2014, combined municipal budgeted appropriation growth remained under its 2.2% budget cap by $381,670. The overall increase in the general fund budget of $236 million was 2.3% compared to fiscal 2013. The bulk of the additional spending reflects the statutory increase of $3.5 million (up 23%) in pension payments to the state administered pension system. Management reports that revenues to date are tracking higher than budget and projects a small increase in its unassigned fund balance at fiscal year-end. Fitch considers this projection reasonable based on management's history of prudent and conservative budgeting practices.
The city's fiscal 2015 budget is in preliminary stages but officials have indicated that the city's budget cap is 2.1% (or an additional $5.1 million). Employee salary costs will rise moderately along with health insurance costs but health costs are being controlled through plan changes and increased employee contribution rates recently implemented.
LOW DEBT; MANAGEABLE PENSIONS
The city's debt ratios (net of estimated state school grant reimbursements and payments from Pennichuck Corporation, the city owned water company), remain low at 1.6% of fiscal 2013 state equalized AV and $1,479 per capita. Amortization is very rapid, with 88% of city and school GO debt (which excludes Pennichuck acquisition debt and self-supporting sewer related debt) retired in 10 years. The city's planned issuance of up to $49 million over fiscal 2015 and 2016 is quite manageable given the rapid amortization of general fund debt.
The city's non-public works employees participate in the state's pension system, which in Fitch's opinion is weakly funded. The state eliminated its pension cost sharing arrangement in fiscal 2012 resulting in the city's contribution to increase by 25% in fiscal 2012 from the year prior. Contribution rates increased by 23% for fiscal 2014 to $18.1 million based on the state's biannually set rate. The city continues to make the full payment of amounts required by the state.
Public works employees participate in a city-managed single employer system and the city continues to pay the annual required contribution (ARC) in full. The city plan is 81% funded, and the unfunded liability is low at $7.6 million as of July 1, 2011.
The city contributed 43% of the fiscal 2013 other post-employment benefit ARC. Carrying costs for debt service (including Pennichuck bonds), pensions and OPEB pay-go are manageable at 15.6% of governmental fund spending.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and 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
U.S. Local Government Tax-Supported Rating Criteria