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MOODY'S ASSIGNS Aaa RATING TO WEST HARTFORD'S (CT) $8 MILLION GENERAL OBLIGATION BONDS, SERIES 2010B

11 Oct 2010

Aaa RATING APPLIES TO $152 MILLION IN PARITY DEBT, INCLUDING CURRENT OFFERING

Municipality
CT

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2010B

Aaa

  Sale Amount

$8,000,000

  Expected Sale Date

10/21/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Oct 11, 2010 -- Moody's Investors Service has assigned a Aaa rating to the Town of West Hartford's (CT) $8 million General Obligation Bonds, Series 2010B. Concurrently, Moody's has affirmed the Aaa rating on the town's outstanding general obligation debt, affecting $144 million. The bonds are secured by the town's general obligation unlimited tax pledge.

RATINGS RATIONALE

The rating assignment and affirmation of Moody's highest rating reflects the town's sizeable and diverse equalized net grand list (ENGL), sound financial position bolstered by reserves held outside of the General Fund, track record of prudent fiscal management and an above-average debt burden governed by a comprehensive capital plan. The current issue will finance various municipal and school capital projects.

SATISFACTORY FINANCIAL POSITION SUPPORTED BY FLEXIBILITY OUTSIDE OF GENERAL FUND; FUNDED STATUS OF PENSION SYSTEM REDUCED

West Hartford's financial position is expected to remain sound given management's close fiscal oversight, prudent use of reserves and adequate fund balance levels. The town has generated operative surpluses in five of the last six fiscal years, increasing undesignated General Fund balance to $16.3 million (a satisfactory 7.4% of revenues) in fiscal 2009, from $11.2 million (6.7% of revenues) in fiscal 2004. The increase reflects the town's consistently conservative budget practices and strict spending controls. Fiscal 2009 ended with a modest $340,000 (0.2% of revenues) reduction of General Fund balance as the town was unable to fully replenish is $781,000 of budgeted reserves due primarily to lower than budgeted revenues and greater than anticipated health claims.

The fiscal 2010 budget represented a $612,000 reduction from the prior year. The budget was balanced without the use of reserves through a combination of property tax revenue growth and expenditure reductions including wage concessions with all municipal employee unions and the elimination of 10 full-time and 13 part-time positions. Unaudited fiscal 2010 results indicate positive operations at year-end in excess of $800,000, with undesignated General Fund balance increasing to a pro-forma $17.1 million (8% of revenues). The town benefited from strong property tax collections (99.1%), greater than budget building permit revenues and expenditure savings.

Of note, the town's financial position is strengthened by available reserves held outside the General Fund. These reserves include the Health Care Reserve ($5.1 million), Capital Non-Recurring Fund ($392,000), Self- Insured Reserve ($947,000) and Utility Reserve ($1.9 million). Including these funds the town's fiscal 2009 available reserve balance increases to $24.7 million or 11.1% of revenues. The combined balances of these funds increased modestly as of the end of fiscal 2010. The adopted fiscal 2011 budget does not include the use of General Fund balance and represents an increase of $6.4 million or 3.0% above the prior year. The budget is budgeted primarily with increased property tax revenues (2.2% or $6.2 million growth) and incorporates expenditure growth driven largely by increases in education and public safety costs.

Reflective of West Hartford's proactive nature, the town established a Health Care Reserve to fund Other Post Employment Benefits (OPEB) in 1985. The town did not make a retiree health insurance contribution from the General Fund for fiscal years 2003 and 2004, but continued to pay such claims from the Health Care Reserve. Additionally, the town only partially funded the actuarially determined annual required contribution (ARC) in fiscal 2005 and 2006. As a result, the town reduced the Health Care Reserve to $11.8 million in fiscal 2006 from its peak position of $30 million in fiscal 1999. The reserve ended fiscal 2009 with a $5.1 million balance which is expected to remain stable at the end of fiscal 2010. A $6.6 million contribution to the Health Care Reserve has been budgeted for fiscal 2011, approximating the ARC as of the 7/1/07 actuarial analysis. The town's current unfunded OPEB liability is approximately $87 million. Additionally, in fiscal 2009, the town established an OPEB trust fund for employees hired after 2003. In order to reduce future OPEB costs significant plan adjustments such as increased normal retirement age and employee contributions have been implemented for approximately 22% of the nonpublic safety unionized workforce.

The town's pension funded ratio has declined considerably over the last ten years to a low of 55.4% as of July 1, 2010 from over 128% in 2000. While the most recent reduction was due largely to poor market performance the funded status of town's pension system is below average and inconsistent with the Aaa rating category. Positively, the town continues to make 100% of its annually required contribution.

SIZEABLE AND DIVERSE EQUALIZED NET GRAND LIST EXPECTED TO REMAIN STABLE

Moody's anticipates that the town's sizable $7.3 billion ENGL will remain stable as growth slows due to recessionary economic conditions. The town is characterized by a diverse economic base (70% residential, 14% commercial /industrial) and major employers within the town include a variety of higher education institutions, manufacturing firms and health providers as well as a commercial sector. The town's net grand list expanded at an average annual rate of 6.4% over the last five years capturing property value appreciation as well as some residential growth and commercial activity. The 10/1/2006 revaluation was initially being phased in over five years and in fiscal 2008 and fiscal 2009 the town experienced an increase in its net grand list of 21.2% and 8.7%, respectively. However, following a state legislative change in fiscal 2009, West Hartford decided to suspend its phase-in of revaluation assessments. As such, the town reverted to the 10/1/2007 grand list for fiscal 2010, which was then adjusted for new growth. The town will have its next revaluation by 10/01/2011, as mandated by the state, and will be reflected in the fiscal 2013 fiscal year. Of note, net grand list growth remained positive for fiscal years 2010 and 2011 at 1.3% and 1.0%, respectively.

Supporting recent tax base growth has been the development of the Blue Back Square, a $198.8 million mixed-use private/public development in the town center. The project was completed in spring 2009 and some highlights of this substantial project entail two parking garages, 70 high-end residential condominiums, and several major retailers. Using proceeds from a previous $48.8 million bond sale, the project also incorporates improvements to the town hall and library, as well as streets, sidewalks, and public areas. The Blue Back Square site has also spurred ancillary development, the refurbishment of existing commercial properties, and various residential projects.

Wealth levels in West Hartford, though above state medians, fall below Aaa medians, as reflected in the $121,211 ENGL per capita. The Connecticut Aaa median ENGL per capita is a significant $272,460. The per capita (PCI) and median family incomes (MFI), as a percent of the nation, are also significantly below similarly rated credits at 155% and 156%, respectively. The Aaa median PCI and MFI as a percent of the nation is a higher 233% and 220%, respectively. Moody's believes that this wealth profile is offset by the town's considerable economic redevelopment in the town center, coupled with a very strong management team and fiscal stability.

ABOVE AVERAGE DIRECT DEBT BURDEN

Moody's expects the town's above average 2.1% (of ENGL) direct debt burden will remain slightly elevated relative to similarly rated municipalities. However, debt levels will continue to be manageable given the town's healthy principal payout of 73% retired within 10 years and reduced borrowing. Further, debt service for the $48.8 million G.O. bonds issued for the construction of Blue Back Square is expected to be paid from revenues generated by the new parking structures and special services district taxes mitigating the impact on the General Fund. Reflecting the strength of the community's strategic planning efforts, West Hartford maintains a 12-year capital improvement plan totaling $151 million that has provided an important framework for identifying the timing and financial resources necessary to meet capital needs. Additionally, the town plans to apply the proceeds from a recently settled lawsuit to reduce a spike in debt service costs over the next three fiscal years. The use of the one-time proceeds is not anticipated to impact operations as the last allocation of litigation proceeds corresponds with a drop in debt service in fiscal 2014. The town has no significant near-term borrowing needs.

The town is a member of the Metropolitan District Commission (MDC), a special district in Hartford that provides water and sanitary services to eight member towns. The town's overall debt increases to a moderate 2.5% (of ENGL) when incorporating overlapping debt associated with the MDC. The MDC has been cited by the U.S Environmental Protection Agency and the United States Department of Justice for overflows from the sewer systems. The abatement plans call for new sewers, removal of storm water flows during storm events, and additional treatment capacity. Each of the eight member towns has overwhelmingly approved an $800 million authorization to begin stage one of the project. This debt is not expected to place fiscal strain on the town's General Fund operations since the project will be funded through user surcharges on the individual customer's quarterly bills.

WHAT COULD CHANGE THE RATING - DOWN?

-- Departure from the town's track record of conservative fiscal and debt management

-- Financial or economic weakening that cause the town to draw down reserves to levels inconsistent with the Aaa rating category.

KEY STATISTICS:

2008 Population: 60,495

Fiscal 2009 Equalized Net Grand List: $7.3 billion

Fiscal 2009 Equalized Net Grand List Per Capita: $121,211

Median Family Income: $77,865 (156 % of the nation, 119% of Connecticut)

Per Capita Income: $33,468 (155% of the nation: 116% of Connecticut)

Fiscal 2009 General Fund Balance: $16.8 million (7.6% of General Fund Revenues)

Fiscal 2009 Unreserved General Fund Balance: $16.3 million (7.4% of General Fund Revenues)

Fiscal 2009 Available Reserves (includes Unreserved General Fund Balance, Capital Non-Recurring Fund, Health Care and Utility Reserves): $24.7 million (11.1% of General Fund Revenues)

Overall Debt Burden: 2.5%

Payout of Principal (10 years): 73%

Post-sale parity debt outstanding: $152 million

The principal methodology used in rating the Town of West Hartford, CT 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

Conor McEachern
Analyst
Public Finance Group
Moody's Investors Service

Andy Moleon
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 Aaa RATING TO WEST HARTFORD'S (CT) $8 MILLION GENERAL OBLIGATION BONDS, SERIES 2010B
No Related Data.
© 2020 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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