TEXT - Fitch affirms Griswold, Conn. 'AA-' GOs
Nov 14 - Fitch Ratings affirms the following rating for the town of Griswold, Connecticut (the town): --$19.2 million general obligation (GO) bonds at 'AA-'; The Rating Outlook is Stable. SECURITY The bonds are a general obligation of the town and backed by its full faith and credit and unlimited taxing authority. KEY RATING DRIVERS FINANCIAL LIQUIDITY REDUCED, BUT RESERVES REMAIN SOUND: Despite recent declines due to three years of net operating deficits, reserve levels remain adequate. To balance the budget and strengthen reserves, management has recently imposed property tax increases. AVERAGE SOCIO-ECONOMIC METRICS: Wealth levels are slightly below state levels but exceed national averages. Unemployment levels remain average. POTENTIAL COMMERCIAL EXPANSION: New projects are in the planning stages due to management's efforts to promote new business expansion and spur tax base growth. MODERATE DEBT PROFILE: Overall debt levels are moderate and are expected to remain so as the town has minimal future borrowing plans. RETIREE COSTS ARE MANAGEABLE: Annual pension and other post-employment benefit (OPEB) costs are not expected to pressure the credit in the near future. CREDIT PROFILE ECONOMIC BASE EXPANDING Griswold, with a population of 11,951, is a rural residential town that covers 37 square miles in New London County in southeast Connecticut. The town, which was traditionally geared toward manufacturing, has observed a recent increase in commercial development. Newly approved projects include an assisted living facility, a new hotel, and residential developments. The town has been providing tax incentives to commercial developers who meet certain criteria. AVERAGE SOCIO-ECONOMIC METRICS The town's 2010 median household income was 88% and 114% of the state and national medians, respectively. The unemployment rate was 9.2% for September, up slightly from 9.1% the year prior and above the state's rate of 9.0% for the same period. The town's population growth and slow housing recovery are both comparable to national trends. Griswold most recent tax base revaluation, effective Oct. 1, 2011, led market value to decline 16% to an approximate $697 million, which reflects the general downward trend of housing prices. The decline in assessed value does not affect management's ability to levy sufficient property taxes however, as it can adjust the millage rate upward to ensure sufficient revenues. FINANCIAL LIQUIDITY REDUCED, BUT RESERVES REMAIN SOUND The town is heavily dependent on property taxes and state support, which represented 49% and 43% of fiscal 2011 general fund revenues, respectively. Both of these main revenue sources fell short of the 2011 budget, with total tax revenues underperforming the budget by 4.7%, or $720,212, and intergovernmental revenues underperformed by 2.1%, or $287,644. The town reduced expenditures to offset the lower than budgeted revenue performance. For fiscal 2011, the town experienced a net operating deficit after transfers of $1.2 million, which includes the appropriation of $600,000 of fund balance. Pursuant to new GASB 54 accounting rules, the general fund was required to absorb the town's Public Health Nursing Fund which had a negative fund balance of $360,000. Therefore, total fund balance declined approximately $1.5 million. Unrestricted fund balance (the sum of committed, assigned and unassigned as per GASB 54) totaled $3 million, or 9.2% of spending. Unassigned general fund balance declined to $2 million, equal to an adequate 6.1% of spending. The town strives to maintain an undesignated/unassigned fund balance in the range of 8.5% to 17% of spending, and the town is working to increase balances back within this range. The fiscal 2012 tax levy increased 0.8%. In fiscal 2012, management included a $605,000 appropriation of fund balance to help offset expected decreases in state support. Revenues continued to underperform; in particular, planned tuition revenues and school aid reimbursements came in below budget but were offset by reductions in expenditures. The fiscal 2012 unassigned fund balance remains below the fund balance policy range. The town balanced the fiscal 2013 budget with a $1.8 million (11.8%) increase in the property tax levy intended to offset a projected $832,000 decrease in state funds and eliminate use of fund balance for operations. Capital costs were also increased by $285,000. Tax collections have been perennially strong and are projected to remain around 98% for fiscal 2013. Management also reports that expenditures should remain fairly consistent going forward with no major expenditure items expected in the future. MANAGEABLE LONG-TERM OBLIGATIONS Overall debt is moderately low at $2,009 per capita and 2.4% of market value. Annual debt service costs represented a low 5.9% of fiscal 2011 general fund spending and are projected to remain at this level. The town has no other future debt plans and historically has only issued debt for school projects. The town has no variable rate debt. Debt amortization rates are moderate with 52.3% of principal retired within 10 years. The town has minimal future capital expenditures that will be funded on a pay-as-you-go basis and with state grants. The largest expenditure is a new high school roof estimated to cost $840,000 after potential state grant reimbursements. The town has been setting aside cash to cover this cost and will continue to do so over the next few years. The town contributes to the state-wide Municipal Employees' Retirement System (MERS), which is a cost sharing multiple employer defined benefit plan. The town's fiscal 2012 contribution was $484,000, representing a manageable 1.5% of total general fund spending. Annual pay-go costs for OPEB obligations were $110,604 in fiscal 2011, or 35% of the ARC. The OPEB unfunded liability totaled $2.0 million as of July 1, 2010, or 0.2% of market value. Fitch does not expect post-employment obligations to pressure the credit.