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MOODY'S ASSIGNS Aa2 RATING TO TOWN OF WALPOLE'S (MA) $1.15MM GENERAL OBLIGATION BONDS

19 Oct 2010

AFFIRMATION OF Aa2 RATING AFFECTS $ 26.9MM OF OUTSTANDING LONG-TERM DEBT, INCLUDING CURRENT SALE

Municipality
MA

Moody's Rating

ISSUE

RATING

General Obligation Municipal Purpose Loan of 2010 Bonds

Aa2

  Sale Amount

$1,350,000

  Expected Sale Date

10/20/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Oct 19, 2010 -- Moody's Investors Service has assigned a Aa2 rating to the Town of Walpole's $1.15 million General Obligation Municipal Purpose Loan of 2010 Bonds. At this time, Moody's has affirmed the town's Aa2 general obligation rating, affecting roughly $25.8 million in outstanding long-term debt. The bonds are secured by the town's general obligation limited tax pledge as debt service is not exempt from the property tax limitations of Proposition 2 1/2. The Aa2 rating reflects the town's adequate financial position including reserves which are likely to remain narrow in the medium term, solid financial management, sizeable tax base with a favorable demographic profile and manageable debt burden.

NARROW BUT STABLE FINANCIAL POSITION

Moody's expects Walpole will maintain an adequate financial position, although reserve levels may decline further in an environment of sluggish revenue growth. Several years of state aid reductions and minimal growth in local receipts outside property taxes have reduced financial flexibility. The town's historically conservative approach to budgeting and expenditure management had boosted available reserves (unreserved general fund and stabilization fund) to $7.59 million in fiscal 2007, a sound 11.3% of general fund revenues and an adequate cushion ahead of the recession. Favorably, the town established a new stabilization fund in fiscal 2007 for future capital needs and related debt service which peaked at $773,446. Operations in fiscal 2008 were pressured by a harsh winter and an elevated $3 million free cash appropriation for capital needs, which was not fully replenished. While the town's stabilization fund remained stable at $1.3 million, available reserves declined to $4.8 million, a below-average 7.9% of revenues. Mid-year state aid cuts in fiscal 2009, including a hefty $750,000 reduction in anticipated prison mitigation funds, again pressured operations and reserves were further depleted, with the capital stabilization fund reduced to $0 and available reserves sliding to $4.5 million, a slim 6.4% of general fund revenues. Notably, the town maintains roughly $1.3 million in additional reserves in various accounts outside the general and stabilization funds, which could be utilized if stress on future budgets fails to lessen.

Operations in fiscal 2010 are expected to be balanced, with modestly-sized favorable revenue and expenditure variances replenishing the $2 million free cash expenditure and producing a $500,000 surplus. The expenditure budget was reduced 1.4% overall and the school department reduced roughly 20 teaching positions. The recently-adopted fiscal 2011 budget was balanced without a stabilization or free cash appropriation for operations, although $555,000 in free cash was budgeted for small capital needs. Despite the adoption of local option meals taxes, expected to generate over $250,000, and significant savings from changes in health insurance plan design, additional school department reductions were necessary to balance the budget in anticipation of a state aid reduction of $342,000. Future budgets are likely to be strained as growth in state and local revenues is expected to lag the general recovery by for several years. As recessionary pressure is expected to negatively impact voters' enthusiasm and ability to approve tax increases, the town does not expect to propose an override of Proposition 2 ½ for at least another year. While Walpole's current budgeting approach remains conservative and the town's financial position is stable, Moody's expects expenditure increases, funding for long-term liabilities and free cash appropriations for capital to continue to pressure operations; additional reserve declines could result in an overall financial position inconsistent with similarly-rated communities and negative rating pressure could result. The town's ability to maintain structural balance while growing reserves, at a minimum in step with revenue growth, will remain critical to Walpole's long-term credit strength.

The town operates a healthy self-supporting water and sewer enterprise system with annual revenues of over $6 million and unrestricted net assets of $4.1 million in fiscal 2009. The town's long-term liabilities for pension and other post-employment benefits (OPEB) continue to grow. Walpole budgets the full annual required contribution (ARC) for its pension liability, which was funded at a reasonable 66% in 2008. Pension funding status is likely to decline in the expected new valuation as of January 2010, reflecting market fluctuations over the last two years. The town plans to establish an OPEB trust fund but a plan has not yet been established to begin funding the $26-49 million liability above the $1.5 million pay-as-you-go contribution. Property taxes represented roughly 66% of general fund revenues in fiscal 2009 and collections are solid at 98.5%.

MODERATE DECLINES IN PRIMARILY RESIDENTIAL TAX BASE

Moody's anticipates limited medium-term growth in the town's $3.7 billion tax base, reflecting Walpole's favorable location in Norfolk County (G.O. rated Aa3/positive outlook), between Boston (G.O. rated Aaa/stable outlook) and Providence, RI (G.O. rated A1). Growth has slowed in the town's residential sector, which represented 86% of fiscal 2010 assessed valuation. Despite modest new development activity, Walpole's tax base experienced overall decline of 3.5% and 4.2% in fiscal 2009 and 2010, respectively, primarily reflecting adjustments in all sectors of the town's housing markets. Town officials report ongoing bank foreclosure activity, however properties have been successfully remarketed and property tax collections remain solid. Despite ongoing commercial and residential development, another modest decline in overall assessed valuation is expected in fiscal 2011 and the state's equalized valuation, representing values as of January 1, 2010 declined 7% from the previous valuation as of January 1, 2008. Revenue from new tax base growth is conservatively estimated at $425,000 in fiscal 2011. Walpole's assessed valuation growth has declined to a still-healthy 6.5% annual average for the 2005-2010 period, down significantly from a robust 14.5% average from 2002 to 2007. Year-to-date building permit activity, outside a spike in non-residential construction for the town's new library, remains relatively flat although new single-family home construction continues with roughly 25 new single-family homes expected annually. Moderate commercial development continues in the retail sector and vacancies remain relatively low. Residential income levels remain well above state medians and the equalized value per capita is a healthy $175,008.

FAVORABLE DEBT POSITION

Walpole's favorable debt position, with direct debt representing a minimal 0.5% of equalized valuation, is expected to remain manageable due to a solid history of voter support and limited future borrowing plans. The town's overall debt burden is still low at 1.3% when including overlapping obligations to regional transportation, water and wastewater systems. Voters have approved exclusions of Proposition 2 ½ for debt service related to roughly half of the town's direct debt, relieving pressure on general fund operations. The town funds routine vehicle replacement and smaller capital needs through annual appropriations of up to $2 million free cash, however near-term free cash appropriations are expected to be sharply reduced to relieve pressure on the operating budget and allow reserve replenishment. Although the town's total capital improvement plan is relatively modest, Walpole's voters approved a $7 million debt exclusion in support of a $12 million library project in November 2008, with the balance to be funded by state grants and private donations. Capital projects under consideration are limited to an $18 million public safety building, although a Walpole's voters recently defeated a debt exclusion for the project and officials are revising the plan and proposed location for a future debt exclusion vote. Debt service expenditures remain well under management's ceiling of 10% of General Fund expenditures at approximately 3.5% in fiscal 2009. Principal of the town's outstanding debt is amortized at a satisfactory 79.7% over ten years, leaving reasonable additional capacity for future borrowing. Walpole has no exposure to variable or auction rate debt or swap agreements.

WHAT WOULD MOVE THE RATING UP:

"Significant improvement in financial flexibility and reserves

"Adoption of financial policies designed to promote long-term financial strength and stability

WHAT WOULD MOVE THE RATING DOWN:

"Declines in available reserves

"Erosion of demographic statistics

"Significant increase in debt burden without voter approval for exclusion from Proposition 2 ½

KEY STATISTICS

2008 population (est, US census): 23,133 (+1.4% since 2000)

2011 Equalized Valuation: $4.05 billion

2011 Equalized Value per capita: $175,008

Median Family Income: $84,458 (137% of MA, 169% of US)

Per Capita Income: $32,117 (123.8% of MA, 149% of US)

Norfolk County Unemployment: 7.4% (8.3% MA; 9.5% US)

FY09 General Fund balance: $5.94 million (8.4% of General Fund revenues)

FY09 Available Reserves: $4.5 million (6.4% of General Fund revenues)

Direct debt burden: 0.5%

Overall adjusted debt burden: 1.3%

Amortization of principal (10 years): 79.7%

Post-Sale outstanding long-term debt: $26.96 million

The principal methodology used in rating Walpole (Town of) MA was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' 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

Susan Kendall
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


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MOODY'S ASSIGNS Aa2 RATING TO TOWN OF WALPOLE'S (MA) $1.15MM GENERAL OBLIGATION BONDS
No Related Data.
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