Fitch Rates Trumbull, CT GOs 'AA+' & BANs 'F1+'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to the Town of Trumbull, Connecticut (the town) general obligation (GO) bonds and bond anticipation notes (BANs):
--$7,575,000 GO bonds, issue of 2014 'AA+';
--$9,885,000 GO BANs, due Sept. 4, 2015 'F1+'.
The GO bonds will permanently finance maturing BANs originally issued to finance various town projects. The BAN proceeds will be used to finance various sewer, school, and public works projects.
Fitch also affirms the 'AA+' rating on approximately $158 million of outstanding GO bonds:
--GO bonds, series 2007, 2008, 2009, 2010, 2011, 2012, 2013;
--GO refunding bonds, series 2004, 2009, 2010, 2012A.
The Rating Outlook is Stable.
The GO bonds and BANs are a general obligation of the town backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
GENERALLY SOUND FINANCIAL MANAGEMENT: Historical operating results have been fairly stable, reflecting management's conservative budgeting and steady moderate tax rate increases that have allowed revenues to keep pace with spending growth. Reserves have been steadily maintained at or near the town's informal 10% policy.
WEAK PENSIONS BUT PROGRESS EVIDENT: Fitch's assessment of the town's financial management practices negatively considers its history of underfunding the actuarial required contribution (ARC) for pension. The town has made important progress towards full funding of the ARC and other changes to its benefit structure that should curtail the growth of this liability going forward. Also, the cost of servicing retiree benefits and debt service consumes a moderate portion of the budget.
AFFLUENT RESIDENTIAL TAX BASE: The bulk of operating revenues are derived from property taxes from a predominantly residential and very affluent tax base. The town is situated in relatively close proximity to several larger labor markets, and unemployment tends to register below that of the state and nation.
MODERATE DEBT: Key debt metrics are moderate and outstanding indebtedness is amortized at a rapid pace. The town's multi-year capital program is manageable and largely driven by discretionary needs.
LINK TO LONG-TERM RATING: The 'F1+' rating on the BANs corresponds to the long-term rating on the town's GO bonds.
The rating is sensitive to shifts in fundamental credit characteristics, including improvement in funding of the town's retiree benefit liabilities.
Trumbull spans an area of 23.5 miles in Fairfield County situated 20-30 miles from both Stamford and New Haven and roughly 60 miles from New York City. The town is a primarily residential community and continues to grow at a moderate pace with an estimated 2013 population of 36,571.
STRONG RESOURCE BASE
The town benefits from a strong tax base registering an estimated $6.46 billion of market value in 2014 or the equivalent of a very high $177,000 per capita. Residential real property accounts for 70% of the tax base. Home prices have exhibited only modest recent growth and remain well below pre-recession highs, but median home prices of $350,000 - $370,000 as reported by Zillow and Trulia compare well to the region and are considerably higher than the state. Median household income in Trumbull of $108,667 is equal to 156% and 205% of the Connecticut and U.S. medians, respectively. The largest tax payer is the Trumbull Shopping Center (a moderate 4.9%) and tax collections average a strong 98-99%.
PROXIMITY TO AREA EMPLOYMENT CENTERS A POSITIVE
The town's largely residential character is complimented by its proximity to somewhat larger employment centers throughout Fairfield County including Fairfield, Bridgeport, Stamford, and New Haven. Town residents exhibit a relatively high degree of educational attainment with 22.8% holding a graduate or professional degree which is 141% of the state norm. The town's unemployment rate has consistently registered below that of the county, state, and U.S. and was reported at 5.2% for June 2014.
GENERALLY SOUND OPERATING TRACK RECORD, ADEQUATE RESERVES
Historical financial operations have been fairly steady. The town recorded consecutive operating surpluses (after transfers) in the general fund in fiscal years 2010 - 2013. During this period the town's unreserved or unrestricted fund balance position increased from $13.1 million or 9.5% of spending to $19.2 million or 12.0%. The town has an informal 10% reserve policy. Unaudited results for fiscal year 2014 depict a very modest operating deficit of $578,106 or 0.4% of spending that is largely attributed to a management decision to provide tax relief. The town adopted a $156.8 million budget for fiscal year 2015 that does not appropriate any portion of the existing fund balance or rely on other non-recurring revenue.
Reserves are not particularly high but satisfactory considering the town's sound financial management and the stability of its revenue structure and year-to-year performance. The town generally budgets conservatively and has demonstrated willingness to increase property taxes to keep pace with spending growth driven by higher pension contributions and debt service. The tax rate increases have been in the range of 1%-2% supplementing the fairly nominal tax base growth of recent years (0.7% and 1.1% in fiscal year 2014 and 2015, respectively). Property taxes are the dominant funding source for the general fund accounting for a very high 92% of budgeted revenue in fiscal year 2015. Importantly the town is not constrained by state law or charter in its ability to increase the property tax levy or rate.
EFFORTS TO IMPROVE LOW FUNDED PENSION EVIDENT
The funded status of the town's pension plans and history of underfunding the ARC for pension remain blemishes on the town's otherwise strong credit profile. Police and general employee pension plans were just 64.7% and 28.1% funded, respectively, as of July 1, 2012 and a low 44.6% on a combined basis. Furthermore both plans are amortized on an open basis which can delay full funding indefinitely. Fitch estimates an aggregate funded ratio of 41% assuming a 7% rate of return (the police plan and town plans assume 8% and 7.5%, respectively). While funding levels are low the combined adjusted unfunded actuarial accrued liability (UAAL) is an estimated $78.3 million, which Fitch does not consider high at the equivalent of roughly 1% of market value.
The town negotiated several important pension plan reforms with labor including a new defined contribution plan for new hires and higher employee contribution rates that are expected to yield both long- and short-term benefits. The town also continues to make progress ramping up its pension contributions after underfunding the ARC by a total of $19.3 million between fiscal years 2008 - 2013. The fiscal 2015 budget fully funds the ARC for the town employee pension (at $4.7 million) for the second consecutive year. However, the town has budgeted only $2.1 million of the $3.1 million ARC for the police plan. The town is considering proposing an amendment to the town charter for voter approval that would require it to fully fund its pension liabilities on an annual basis.
MODERATE DEBT BURDEN AND FUTURE CAPITAL NEEDS
Fitch views the town's debt metrics as moderate overall, estimated at 2.7% of market value or $4,825 per capita. The town repays a very high 74% of its outstanding principal within 10 years. Despite the rapid amortization of debt the town's general government debt service consumes a low 6% - 7% of spending. A descending debt structure also allows the town good flexibility to address future capital needs, which Fitch considers modest. The town anticipates issuing about $7 million in debt per year to fund its five-year $96.3 million capital program, with the remainder of funding coming largely from grants.
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, and IHS Global Insight.
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