TEXT-Fitch rates Meriden, Conn. GO bonds 'AA-', outlook stable

Wed Jan 23, 2013 10:27am EST

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Jan 23 - Fitch Ratings has assigned its 'AA-' rating to Meriden, CT's (the
city) general obligation (GO) bonds as follows:

--$25.5 million GO bonds, issue of 2013.

The bonds are scheduled to sell via competition on or about Jan. 31, 2013.

In addition, Fitch affirms the following ratings:

--$37.6 million outstanding GO bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the city backed by its full faith, credit,
and unlimited taxing authority.

KEY RATING DRIVERS

SOUND FINANCIAL PERFORMANCE: The city's prudent and conservative budgeting
practices have resulted in sound operating results somewhat offsetting pressure
from potential reductions in state aid and increased costs for education.

MIXED SOCIOECONOMIC INDICATORS: Wealth levels are above average, and
unemployment is high relative to the state and nation.

LOW DEBT BURDEN: Debt levels are low with above-average amortization of
principal.

MANAGEABLE RETIREE COSTS: The city has been making 100% of required
contributions to its pension plans and prudently increased annual contributions
for its other post-employment benefits (OPEB) obligation. These liabilities are
currently at manageable levels.

CREDIT PROFILE:

Meriden is located in northeast New Haven County, midway between New Haven and
Hartford with a 2011 population of 60,770. The city benefits from a somewhat
diverse tax base and stable population.

MIXED SOCIOECONOMIC INDICATIORS

The city is home to Midstate Medical Center, a full-service hospital, the
Meriden campus of Middlesex Community College, a major mall, and a number of
manufacturing firms with diversified product lines. The top 10 taxpayers
represent a moderate 8% of net taxable grand list. The city continues to focus
on attracting new businesses and reclaiming and rehabilitating existing land and
properties for future development.

The city's tax base was revalued on Oct. 1, 2011, as part of the statutorily
required five-year revaluation (effective for the fiscal 2013 budget). The
city's fiscal 2013 market value is currently $4.6 billion and has decreased
10.7% from last fiscal year. The city prudently increased property tax rates by
4 mills to maintain revenue neutrality. Wealth levels exceed national levels but
are below the strong state of Connecticut levels. The city's October 2012
unemployment rate is 10.3%, slightly elevated from 10% a year prior, and higher
than both the state (8.6%) and the nation's (7.5%) rates.

SOUND FINANCIAL MANAGEMENT

The city's finances are well managed. The city's fiscal 2011 unrestricted
general fund balance (the sum of committed, assigned, and unassigned as per GASB
54) totaled $17.3 million or a sound 9.6% of spending. Results were marginally
above the city's recently adopted formal policy calling for the average of one
month's budgeted spending from the prior fiscal year (8.3% for fiscal 2011).

Fiscal 2012 posted a small deficit (0.5% of spending) after three-years of
operating surpluses. This was due primarily to the city's increased OPEB funding
to 50.7% of the annually required contribution from 29.6% in fiscal 2011. Fitch
views the increased contribution as a credit positive in conjunction with the
city's stated commitment to adhere to its fund balance policy.

Annual property tax increases have supported revenue growth, offsetting minor
shortfalls in non-tax revenues and state aid. Expenditure performance has
matched revenues, declining 2.2% on average between fiscal 2008 and fiscal 2012,
reflecting the city's flexibility in adjusting spending. The 7.3% increase in
fiscal 2012 spending was one-time in nature, driven by employee and education
costs related to special revenue funds (American Recovery and Reinvestment Act).
The city's fiscal 2012 unrestricted general fund balance totaled $16.6 million,
equal to a sound 8.6% of spending, and in compliance with the city's fund
balance policy.

The city's fiscal 2013 general fund budget of $183.6 million is up by a slight
1.4% from fiscal 2012. The budget includes a 4% increase in property tax
revenues (equal to approximately $4 million) to support increases in public
safety, highway improvements, and insurance costs. The budget includes a $1.2
million appropriation of fund balance to once again support increased
contributions to its OPEB trust. Beginning in fiscal 2014 management has said
that OPEB contributions will become structured into the budget which Fitch views
as a credit positive.

DEBT LEVELS UP BUT EXPECTED TO REMAIN LOW

Debt levels remain low after the current issuance with debt per capita at $1,426
and debt to market value at 1.9%. GO debt amortizes at an above average rate
with 60.8% of principal amortized in 10 years. Including the new issue, debt
service as a percentage of general fund expenditures will approximate 8.4% of
the fiscal year 2013 budget compared to 6.2% in fiscal 2012, and is above the
enacted goal of 5% of spending. While Fitch views non-compliance with policies
as a credit negative, the debt service burden remains affordable and the city
continues to adhere overall to its conservative debt policies. Fitch does not
expect debt levels to rise following the current issue as the remaining $322
million five-year capital plan is largely funded through grants and user fees.

MANAGEABLE RETIREE COSTS

The city administers three pension plans for its general, fire, and police
employees. In accordance with its policy, it has made 100% of its annual
required contributions (ARC) for the last five years for each of these plans.
Contributions in fiscal 2012 for all three plans totaled $8.5 million (4.4% of
general fund spending).

As of July 1, 2010, the general employees' plan was 105% funded; the police plan
was 62.9% funded; and, the fire plan was 68.4% funded. Using Fitch's more
conservative 7% discount rate assumption, the plans would be funded 94.6%, 56.5%
and 61.6%, respectively. The combined unfunded liability for the police and fire
plans totaled $60.1 million. The city has established a defined contribution
plan for non-safety employees hired as of July 1, 2011, which is expected to
reduce future pension obligations.

The city's fiscal 2012 OPEB contribution was $5.6 million (51% of its ARC),
equal to manageable 3% of spending. The unfunded OPEB liability was $99.2
million as of July 1, 2010. Management is projecting a decline in the future
OPEB ARCs due to agreed increases in employees' contributions toward future
benefits. The city will not be providing OPEB benefits for new employees hired
after July 2009.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

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,
IHS Global Insight, and the National Association of Realtors.

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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