NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to the city of Cambridge, MA's (the city) general obligation (GO) bonds:
--$46.22 million GO municipal purpose loan of 2011, 'AAA'.
The bonds are scheduled to be sold competitively on Feb. 15, 2011.
In addition, Fitch affirms the 'AAA' rating on the city's outstanding $310.77 million GO bonds.
The Rating Outlook is Stable.
--Cambridge's exceptional financial management is characterized by its high reserve and liquidity levels.
--Conservative budgeting practices along with a use of reserves the last two years has helped keep tax levy increases at moderate levels while the city faces increases in education and public safety costs.
--The stable presence of higher education, health care, biotechnology, and life sciences industries supports the well-diversified economy with low unemployment and above-average wealth levels.
--Growth in assessed value provides the city with tax levy flexibility for operations and debt service as the gap between the city's actual tax levy and the statutory levy limit has grown to its highest level in the city's history.
--Debt levels are moderate and expected to remain manageable, aided by the city's rapid amortization rate.
KEY RATING DRIVERS:
Ongoing sound financial management, which has benefited the city's financial position.
The bonds are general obligations of the city, payable from ad valorem taxes on all taxable property in the city, subject to statutory limitations.
Cambridge is located in Middlesex County across the Charles River from the city of Boston and is home to both Harvard University and Massachusetts Institute of Technology. These two highly acclaimed institutions continue to account for the employment of over 18,300 people but the city continues to consolidate its position as an employment leader in the biotechnology industry. Leading biotech companies, including Novartis, Biogen, Vertex Pharmaceuticals, Pfizer and Genzyme, employ almost 9,000 Cambridge workers. Several major software and Internet companies have recently established research and development operations in Cambridge including Microsoft, Google and VMware. The city's well-diversified economy contributes to historically low unemployment rates (5.6% in November 2010) and high per capita money income figures (150% of the national average).
Assessed value (AV) declined moderately in fiscal 2011 by 0.5% but annual growth in AV has averaged 2.5% since 2007. The city is projecting stable valuations with a small decline in both commercial and residential assessed values in fiscal 2012 followed by a slight increase in fiscal 2013. A more moderate increase in fiscal 2014 and 2015 is projected based on new construction, appreciation in values of existing property and major rehabilitations. Numerous economic development projects are underway or in the planning stages and include expansions to existing corporate facilities and new offices or labs. Fitch notes that Cambridge's substantial $99.4 million of excess levy capacity under Proposition 2 1/2, along with its considerable reserve levels, provide the city with ample flexibility to weather the effects of the economic recession. Officials expect the city's excess levy capacity to decline modestly in line with projected AV declines and as a result of tax levy increases which may be necessary to offset declines in state aid.
Exceptional financial management and planning are demonstrated by the city's strong financial position. The city had planned draws on its general fund reserves in fiscal 2009 and 2010 to keep tax levies at moderate levels and fiscal 2010 unreserved general fund balances declined to $129.5 million from $141.6 million in fiscal 2009, but still equaled a high 31% of spending. The city has historically maintained an unreserved fund balance well in excess of the city's fund balance policy requiring an unreserved general fund balance equal to at least 15% of the ensuing year's budgeted revenues. Cambridge's $89.3 million of certified free cash for fiscal 2010 remained among the largest amounts in the city's history. The fiscal 2011 operating budget grew by a manageable 3.1% over the fiscal 2010 level attributable to higher salary, health, and pension costs, increased debt service, and a 53rd pay period. The budget includes the use of approximately $11.4 million in free cash for such purposes as supporting the tax rate, as is the city's practice, and includes $2.5 million for capital and overlay purposes. According to city officials, revenues are trending higher than expected which could limit the actual use of appropriated free cash.
Net direct debt equals a moderate $2,561 per capita, and $4,552 per capita with the inclusion of overlapping, but as a percentage of fiscal 2011 equalized valuation of $27.9 billion, ratios are much lower at 1% and 1.8%, respectively. Debt levels should remain manageable given the city's modest overall capital needs and rapid amortization rate; approximately 76% of debt retires within 10 years. The city plans to issue approximately $159 million of additional debt over the next four years, with approximately 64% to be supported by user fees. The Cambridge Retirement System was 84% funded as of the Jan. 1, 2010 valuation date, a decline from higher funded levels in years prior. Like most pension systems, asset values have declined more recently resulting in higher future projected annual required contributions (ARC). The city contributed $28.6 million for fiscal 2011 and has historically made 100% of its ARC. The city paid $23.9 million in pay-as-you-go OPEB contributions in fiscal 2010 which accounted for 53% of total OPEB costs. The city's unfunded OPEB liability totaled a high $623 million in fiscal 2010 and city management created an OPEB trust fund in December 2009 with an initial contribution of $2 million and has planned to make annual contribution of $2 million beginning in fiscal 2013.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight.
Appicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated 16 Aug. 2010.
'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct. 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria