|[August 20, 2014]
Fitch Rates Meriden, CT's GO Bonds 'AA-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings assigns a rating of 'AA-' to the following general
obligation (GO) bonds of the City of Meriden, Connecticut (the city):
--$50,305,000 tax exempt GO bonds, issue of 2014 - lot A;
--$3,494,000 taxable GO bonds, series of 2014 - lot B.
The bonds will be sold competitively on Aug. 26. Proceeds will finance
various general government, school, wastewater, water, and golf course
projects in the city.
In addition, Fitch affirms the 'AA-' rating on the following outstanding
GO bonds of the city:
--GO bonds, series 2006, 2008, 2013 and GO refunding bonds, series 2012.
The Rating Outlook is Stable.
The bonds are a general obligation of the city backed by its full faith
and credit and unlimited taxing power.
KEY RATING DRIVERS
MODERATE FINANCIAL RESERVES: General fund reserves are maintained at
one-month of spending as per the city's formal fund balance policy.
Reserves are viewed as moderate by Fitch, but satisfactory considering
the city's track record of stable financial performance.
STABLE OPERATING PERFORMANCE: General fund operations remain
structurally balanced and are largely funded by property taxes which are
not subject to any cap or limitation. The city has demonstrated a
willingness to enact moderate tax increases to help maintain fiscal
balance and offset the relatively stagnant performance of the tax base.
PRUDENT RETIREE BENEFIT FUNDING: The city's pension plans are adequately
funded and recently closed to new hires. Other post-employment benefits
(OPEB) are likewise eliminated for new hires, and the city has made
considerable funding commitments to the unfunded OPEB liability. The
city has successfully implemented other retiree benefit reforms that are
expected to yield both near-and-long-term savings.
MODERATE DEBT: The city's debt burden is expected to remain moderate
based on future issuance plans and capital needs. Debt amortizes at a
healthy pace and the cost of servicing the city's debt, pension, and
OPEB represent a moderate portion of the annual operating budget.
STRAINED ECONOMIC CONDITIONS: Fitch views the city's economic profile as
an area of weakness based on its stagnant employment levels, history of
high unemployment, and mixed income indicators. Some development is
evident, but has not translated to tax base growth to date.
Fitch expects the city's debt and financial performance will remain
stable. Improved economic performance, including employment and income
growth, could support consideration for a higher rating over the
Meriden covers an area of 24 square miles in central Connecticut
approximately 15 miles east of Waterbury, 20 miles south of Hartford,
and 20 miles north of New Haven. The city is situated at the
intersection of I-91, I-691 and the Merritt Parkway. The city has a
fairly stable population estimated at 60,456 in 2013.
MODERATE RESERVES MAINTAINED
Fitch views the city's fund balance position as moderate. In fiscal
2013, the general fund unrestricted fund balance totaled $16.4 million
or the equivalent of 8.3% of operating expenditures and transfers out.
The city's formal reserve policy requires an unassigned fund balance
equal to one month of budgeted annual spending for the prior audited
fiscal year. Reserves were maintained at a very low 1% to 2% from fiscal
2004-2008, but improved significantly in fiscal 2009 due to the receipt
of $11.1 million in reimbursements from the Connecticut Resource
Recovery Authority (CRRA) as a result of the conclusion of a 20-year
contract for the operation of the Wallingford trash-to-energy plant.
Fitch expects the city's financial position will remain relatively
stable over the near term. Unaudited results for fiscal 2014 show a
$425,871 addition to fund balance on a budgetary basis, and the city
adopted a balanced budget for fiscal 2015 that does not rely on existing
reserves or other non-recurring resources.
STABLE OPERATIONS DRIVEN BY PROPERTY TAX REVENUE
Fitch considers the city's stable operating performance an important
credit factor given the moderate level of fund balance maintained.
Fiscal 2014 would mark the fourth time in the last five years the city
achieved a net surplus after transfers in the general fund. A deficit in
fiscal 2012 equal to $1 million or 0.5% of spending was driven by
pre-unding of the city's OPEB liability.
The fiscal 2015 general fund budget is largely funded by property taxes
(63%) and intergovernmental aid (33%). The city enacted moderate tax
rate increases in the range of 1%-3% per year to compensate for a grand
list that has remained fairly stagnant, increasing just 0.2% for fiscal
2015 after a 0.9% loss in fiscal 2014. Importantly, neither the city's
tax levy nor tax rate is subject to a statutory or charter limitation.
There is no significant taxpayer concentration. Connecticut Light &
Power (CL&P) is the largest payer at 1.9% of the tax digest; CL&P has a
long-term Issuer Default Rating of 'BBB+' with a Stable Outlook by Fitch.
SOUND APPROACH TO FUNDING RETIREE LIABILITIES
The city's pension liabilities are manageable and its efforts to fund
pension and OPEB liabilities are viewed as prudent. As of July 1, 2012,
the aggregate funded position of the three city pension plans for
general employees, police, and fire, was 79.7% with an unfunded
actuarial accrued liability (UAAL) of $67.6 million, equal to 1.4% of
market value. The UAAL widens to an estimated $104.3 million or 2.3%
adjusting the city's assumed 8% rate of return to 7%. Effective July 1,
2011, new hires will participate in a defined contribution or hybrid
pension plan (for police) which should control growth of the pension
liability going forward.
Retiree health benefits were also eliminated for new hires and higher
employee contributions were negotiated for both pension and OPEB. The
city continues to fund the full ARC for pensions and has contributed a
total of $17.5 million from fiscal years 2009-2015 into an OPEB trust.
The trust has a current estimated balance (inclusive of investment
earnings) of $20.3 million, providing 25% funding of the $81 million
actuarial accrued OPEB liability as of July 1, 2012.
MODERATE DEBT POSITION
Fitch estimates the city's debt burden at a moderate 3.8% of market
value or $2,879 per capita. Future capital needs are manageable, largely
driven by high school renovation projects which are expected to be 77%
funded through the state school building grant program. The city plans
to sell up to $11 million in bonds for the local share of the school
projects and $4 million for water system improvements over the next two
Debt amortization is healthy with 63% of outstanding debt repaid in 10
years ($9 million to $13 million in principal per year). Debt service
costs have been in decline reflecting the city's conservative debt
policies, but are scheduled to spike temporarily beginning in fiscal
2016 which Fitch does not believe will represent a material budget
challenge. Funding for debt service in addition to pension and OPEB are
projected to consume a reasonable 12% of governmental spending.
ECONOMY AND HOUSING STILL LOOKING TO GAIN TRACTION
Meriden's economy continues to exhibit a relatively high level of
joblessness following very modest declines in annual employment from
2011-2013. Employment statistics as of June 2014 are more positive,
however, the city's 8.1% rate of unemployment still compares unfavorably
to the state and national rates of 6.4% and 6.3%, respectively, as has
been the case historically.
The city has a fairly high level of exposure to the manufacturing sector
in addition to retail and healthcare. The city's manufacturing base is
moderately diverse with product lines varying from electronic
components, lighting fixtures, and biopharmaceuticals. The largest
employers in the city include the Midstate Medical Center (1,200),
Hunter's Ambulance Service (440), Canberra (317), AT&T (News - Alert) (653), Bob's
Stores (320), and Target (230). The city's central location in the state
and proximity to major highways offer residents access to larger
employment centers in the state. Proximity to Hartford and New Haven
should contribute to stability over time but neither region is viewed as
having particularly strong growth prospects.
The city's median household income (MHI) still registers 102% of the
national average but has declined at a 1.4% annual rate from 2008-2012
and is considerably below that of the wealthy state. The housing market
remains slow to recover as well with existing median sales prices down
5% to 6% on the year to roughly $140,000 according to Zillow and Trulia.
Median sales prices peaked at $190,000 to $200,000 prior to the
Favorably, the city has experienced an uptick in permit activity the
last several years as it continues to aggressively pursue site
acquisition, zoning regulations and development incentives available
through various state and federal programs to stimulate growth. Among
the more prominent recent projects is the development of the $467
million New Haven/Hartford/Springfield rail line. The project will
include a $20 million station in the city entirely funded by the
Connecticut Department of Transportation. The project is under
construction with rail operations scheduled to begin late 2016.
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 (News - Alert) 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
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