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MOODY'S ASSIGNS Aa2 RATING TO TOWN OF EAST HARTFORD $16.4 MILLION GO BONDS, SERIES 2011A AND 2011B

19 May 2011

RATING AFFECTS $52.2 MILLION IN POST-SALE PARITY DEBT, INCLUDING THIS ISSUE

Municipality
CT

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds, Issue of 2011B

Aa2

  Sale Amount

$5,405,000

  Expected Sale Date

05/26/11

  Rating Description

General Obligation

 

General Obligation Bonds, Issue of 2011A

Aa2

  Sale Amount

$11,000,000

  Expected Sale Date

05/26/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, May 19, 2011 -- Moody's Investors Service has assigned an Aa2 rating to the Town of East Hartford's (CT) $11 million General Obligation Bonds, Issue of 2011A and $5.4 million General Obligation Refunding Bonds, Issue of 2011B. Concurrently, Moody's has affirmed the Aa2 rating on the town's $41.2 million in outstanding parity debt. The bonds and the notes are secured by the town's unlimited tax pledge. Proceeds from the 2011A bonds will be used for various road improvements as well as capital projects for the town. Proceeds from the 2011B bonds will be used to refinance the town's Series 2005 and 2006 bonds with an expected net present value savings of approximately 4.3%, with no extension of maturities.

SUMMARY RATING RATIONALE

The Aa2 reflects the town's below average reserve position sizable tax base, stable local economy, and favorable debt position.

STRENGTHS

-Still healthy financial position, albeit with reserves down from recent highs

-Demonstrated ability to address ongoing spending pressures

-Sizeable tax base with a stable underlying economy

-Below-average debt position

CHALLENGES

-Maintenance of financial stability amidst rising spending pressures

DETAILED CREDIT DISCUSSION

SOUND FINANCIAL POSITION DESPITE RECENT SOFTENING OF RESERVES

East Hartford financial position is expected to remain sound despite the recent decline in reserves largely related to one-time expenditures and, more recently, softening in economically sensitive revenue sources. Fiscal 2010 recorded an unreserved General Fund balance of $12 million or 7.7% of General Fund revenues down from a fiscal 2007 peak of $14.8 million unreserved General Fund balance of 9.3% or revenues. Although the majority of the decline has primarily been driven by one-time transfers for capital projects ($1.3 million) and the establishment of a trust for Other Post Employment Benefits (OPEB) in fiscal years 2008 and 2009 ($2.4 million), the recent draw on reserves ($698,000) in fiscal 2010 was primarily driven by economically sensitive interest income and conveyance tax revenues.

The fiscal 2011 budget included a 3.7% spending increase that was offset by a combination of increases to property taxes and a continuation of cost containment measures from prior years. In addition to the 20 positions eliminated in fiscal 2010, management continued to reduce headcount by another 12 positions to mitigate increasing spending pressures. In addition, management was able to close the majority of intra-year budget gap by implementing a mid-year spending freeze in response to an unanticipated increase in snow removal costs and was offset negative variances in interest and conveyance tax revenues from the sale of an elementary school. Based on year-to-date results, management has conservatively projected a fund balance draw of approximately $1 million with ending unreserved General Fund balance of $11 million or 7.5% of revenues. The recently adopted fiscal 2012 budget included a 1.65% increase in spending resulting from increases in benefits and salaries costs. Given the recent reduction in General Fund balance, management's ability to maintain adequate financial flexibility by offsetting ongoing contractual spending increases will be a key rating driver. Inability to do so would likely exert downward rating pressure as it would represent an erosion of the town's financial credit profile.

Although the town implemented a strategy to improve its pension funding position that included the adoption of asset smoothing (a practice adopted five years ago) and a change in benefit options (employees hired after January 1, 2006 receive a defined contribution plan rather than the original defined benefit plan), the funded ratio declined to 66.5% as of July 1, 2010 from previous highs of the 76% range in years past due to investment losses. Positively, management is committed to fully funding the actuarial required contribution (ARC) of $9.2 million in fiscal 2012. Of additional note, management has demonstrated a proactive approach to addressing the future OPEB liability, having commissioned an actuarial study and establishing an OPEB Trust Fund in fiscal 2010 (current balance $2.4 million). For fiscal 2012, the town has budgeted to contribute $6.3 million of an $11 million ARC, $1.4 million of which will be used to further prefund its liability.

SIZEABLE TAX BASE WITH SIGNIFICANT REDEVELOPMENT OPPORTUNITIES PLANNED

East Hartford's underlying economy is expected to remain stable over the near term; however Moody's anticipates town's sizable $4.4 million equalized net grand list (ENGL) to decline with the fiscal 2013 revaluation given the ongoing weakness of the regional real estate market and recessionary economic conditions. The town benefits from its location next to the City of Hartford (rated A1/stable outlook) and access to major transportation routes (I-84 and Rt. 2). Over the last five years, the town's grand list increased at a modest 0.3% average annual rate. The Pratt and Whitney division of United Technologies (Sr. Unsecured debt rated A2 with a stable outlook), manufacturer of both military and commercial jet engines, is both the largest taxpayer at 11% of aggregate assessed value and the largest employer with 7,900 jobs (including the United Technology Research Center) with additional 300 jobs anticipated over the near term.

East Hartford has significant development opportunities that are expected to positively impact the town's economic base throughout the long term. The town's largest redevelopment opportunity exists in Rentschler Field, a decommissioned airport owned by United Technologies. A master plan for the site includes 15 million square feet of commercial, retail, and high-end residential development over the next 12 to 18 years with a projected $2 billion investment in the community. Development in Rentschler Field currently includes Cabela's Outdoor Retail store and a Boat Maintenance Facility. Furthermore, Goodwin College, with a current student enrollment of 1,400 students, is undergoing a $160 million infrastructure expansion along some riverfront property near East Hartford's downtown. The expansion to this facility is expected to increase enrollment to nearly 6,000 students within the near-term and create a positive economic growth engine for the downtown area. In addition, the college is building three new magnet schools (a $200 million project) and construction is expected to be completed in 2013. Although the median family (MFI) and per capita incomes (PCI) are adequate at 101% and 94% of the nation, these indices have declined over the last several decades. When calculating wealth indicators as a percent of the state, the town's MFI and PCI are weaker at 76% and 77%, respectively. Moody's anticipates that the realization of large-scale development in the commercial and residential sectors over the medium- to long-term will positively impact the town.

DEBT EXPECTED TO REMAIN MANAGEABLE

Moody's believes that the town's 1.6% of ENGL overall debt burden will remain manageable given rapid principal retirement (89.3% in 10 years) and a moderate level of future borrowing plans. Additional debt plans include flood control improvements ($13 million subject to voter approval), the expansion of the Raymond Library ($2 million), and ongoing road improvements ($10 million) in the next two to three years. The town has traditionally issued debt with 10-year maturities, thus maintaining a rapid amortization schedule and enabling management to layer in additional debt with minimal fiscal impact. All of the town's debt is fixed rate and the town is not party to any derivative agreements.

WHAT COULD MAKE THE RATING GO UP

-Significant improvement of the underlying tax base

-Sizeable growth fund balance growth

WHAT COULD MAKE THE RATING GO DOWN

-Persistent fund balance draws

-Decrease in tax base

KEY STATISTICS

2009 Population: 48,634

2010 Equalized Valuation: $4.3 billion

2009 Equalized Valuation Per Capita: $100,981

1999 Median family income as % of nation, (as % of the state): 101%, (76%)

1999 Per capita income as % of nation, (as % of the state): 94%, (77%)

Fiscal 2010 Total General Fund balance: $12.9 million (8.2% of revenues)

Fiscal 2010 Undesignated General Fund balance: $12 million (7.7% of revenues)

Overall Debt Burden: 1.6%

Payout of Principal (10 years): 89%

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Dora Lee
Analyst
Public Finance Group
Moody's Investors Service

Conor McEachern
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING TO TOWN OF EAST HARTFORD $16.4 MILLION GO BONDS, SERIES 2011A AND 2011B
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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