Nov 16 - Fitch Ratings assigns an 'AA+' rating to the following Milford, CT
(the city) unlimited tax general obligation (GO) bonds:
--$14 million GO refunding bonds, issue of 2012 series B.
The bonds will be sold competitively on Nov. 29th.
In addition, Fitch affirms the 'AA+' rating on approximately $99.7 million of
outstanding GO bonds and the 'F1+' rating on $14.3 million in outstanding GO
BANs which mature on May 2, 2013.
The Rating Outlook is Stable.
The bonds and notes are general obligations of the city, backed by its full
faith and credit and unlimited taxing power.
KEY RATING DRIVERS
SOUND FINANCIAL PERFORMANCE: Milford has maintained healthy reserves levels that
provide for financial flexibility if pressures should arise.
FAVORABLE SOCIOECONOMIC INDICATORS: The economy is stable, with above-average
market value per capita and wealth levels.
MODERATE DEBT BURDEN: Milford's debt burden is expected to remain moderate given
the above-average amortization of existing debt and the city's manageable debt
RETIREE COSTS WELL-FUNDED: Pensions are overfunded and other post-employment
liabilities are manageable.
PROVEN MARKET ACCESS: The 'F1+' rating on the BANs reflects the city's strong
long-term credit characteristics.
FAVORABLE SOCIOECONOMIC INDICATORS
The city of Milford is located in New Haven County on the Long Island Sound
between New Haven and Bridgeport. Residents benefit from easy access to the
employment market in southern Fairfield County via Interstate 95, the Merritt
Parkway, and Metro North rail. The city is primarily residential with some
commercial and industrial presence represented by the Connecticut Post Shopping
Center and power plant operator GenConn Devon LLC, a subsidiary of NRG Energy,
Inc. Top employers include the city's Board of Education (BOE) with 1,112
workers, Milford Hospital (780), and Subway Restaurants world headquarters
(903). The city's September 2012 unemployment rate has declined to 7.8% compared
to a year prior and remains below the state rate (8.2%).
Residents are affluent, with median household incomes equal to 181% of the
national average and 116% of the state's high level. Market value per capita is
estimated at a high $174,000. The city underwent its five-year property
revaluation in 2011 (effective fiscal 2013) which resulted in a $1 billion, or
18%, increase in taxable grand list. The increase is partially attributable to a
three-year freeze of the phase-in of the prior five-year property revaluation
performed in 2006.
SOUND FINANCIAL PERFORMANCE
The city's financial position continues to be sound. The city realized a $4.1
million surplus after transfers in fiscal 2011, which increased the unrestricted
general fund balance (the sum of committed, assigned, and unassigned per GASB
54) to $23.1 million or 12.6% of total spending. Fiscal 2011 unassigned general
fund balance totaled $12.8 million, equal to 7% of spending. Positive variances
were attributed to higher than budgeted property taxes, as well as below-budget
expenditures which contributed to better than expected operations. Property
taxes made up a high 81% of fiscal 2011 revenue.
For fiscal 2012, the city is projecting the use of $1.7 million of the
originally appropriated $4 million fund balance resulting in a positive budget
variance of $2.3 million after transfers. Unaudited results report property tax
collections and intergovernmental revenues coming in better than expected as
well as savings across education and health care administration. Estimated
fiscal 2012 year-end unassigned fund balance is anticipated to equal $12 million
to $14 million, or a still sound 7% to 8% of spending. The city historically has
not used all of its budgeted fund balance due to its conservative budgeting
practices and has maintained undesignated (now unassigned) reserves in excess of
its minimum policy of 5%.
EXPECTATIONS FOR FISCAL 2013
The fiscal 2013 budget contains an overall modest 1.2% expenditure increase for
the city and schools, reflecting increases in salaries and wages. The city's
fiscal 2013 budget does not include appropriation of any fund balance. Education
funding, which represents the city's largest general fund expenditure, is
budgeted to increase approximately 1.8% compared to the year prior. The Board of
Education's (BOE) finances benefit from the restoration of state Education Cost
Sharing grants in fiscal 2012, which were reduced in prior years. The BOE budget
is set by the city council, and the BOE is not legally permitted to overspend
its budgeted allocation.
MODERATE DEBT BURDEN
Debt ratios are moderate with overall debt equal to $3,138 per capita and 1.8%
of market value. Fiscal 2013 budgeted debt service is a modest 7% of spending,
below the policy limit of 10%. The capital improvement plans call for
approximately $67 million in borrowing over the next five years, much of which
is for school projects and sewer improvements. Fitch believes that the city's
debt burden will increase but remain manageable due to its above-average
amortization rate of 66% debt retiring in 10 years and the city's restrictive
annual debt service policy.
RETIREE COSTS WELL-FUNDED
The city's single-employer pension plan was overfunded at 121% of the actuarial
accrued liability as of the plan's July 1, 2011 valuation, using a liberal 8.5%
discount rate. With Fitch's more conservative 7%, the funded ratio would still
be high at 104%. In fiscal 2012 management contributed to the pension fund
$342,000 and has budgeted $324,000 in fiscal 2013. The plan covers Milford's
full-time employees with the exception of teachers, who are covered by a state
The unfunded actuarial accrued liability (UAAL) for other post-employment
benefits (OPEB) is $265 million or a sizable 4% of market value. The fiscal 2011
pay-as-you-go amount on a combined basis for the city and BOE was $8.7 million
(34% of the ARC), equal to a high 4.8% of general fund spending. The city has
taken prudent steps to mitigate its OPEB liability through its establishment of
a trust. Trust assets totaled $2.7 million at October 2012, as reported by