Fitch Rates Milford, CT's Series 2013 GOs 'AA+' and BANs 'F1+'
NEW YORK -- October 28, 2013
Fitch Ratings has assigned the following ratings to the city of Milford, CT's
general obligation (GO) bonds and bond anticipation notes (BANs):
-- $16,000,000 GO bonds, series 2013, 'AA+';
-- $15,354,000 GO BANs, Lot A, 'F1+';
-- $4,031,000 GO BANs, Lot B, 'F1+'.
The bonds and notes are scheduled to sell competitively on Oct. 31. The
proceeds of the bonds will be used to finance outstanding BANs and provide
funding for various public improvement, school and sewer projects. The BANs
are being issued to fund city, school and sewer projects.
In addition, Fitch affirms the city's following ratings:
-- $104 million outstanding GO bonds, at 'AA+'.
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
ABOVE-AVERAGE SOCIOECONOMIC PROFILE: The city benefits from a stable economy
with above-average real estate valuations, high wealth levels, and a diverse
SOUND FINANCIAL MANAGEMENT: Management's conservative budget practices and
prudent debt policies provide for financial stability.
STRONG AND STABLE RESERVES: Milford's healthy reserve levels have been
maintained and provide for financial flexibility if unforeseen pressures
MODERATE DEBT LEVELS: Milford's debt burden is moderate and its long-term
obligation profile benefits from rapid amortization and manageable borrowing
RETIREE COSTS WELL-FUNDED: Pensions are overfunded and other post-employment
benefit (OPEB) liabilities are manageable.
PROVEN MARKET ACCESS: The 'F1+' rating on the BANs reflects the city's strong
long-term credit characteristics and history of successful market access.
The rating is sensitive to shifts in fundamental credit characteristics
including the city's strong financial management practices and maintenance of
healthy reserve levels. The Stable Outlook reflects Fitch's expectation that
such shifts are highly unlikely.
The city of Milford is located in New Haven County between New Haven and
Bridgeport. The city has 17 miles of shorefront property along the Long Island
Sound and a 2012 population of 52,981.
ABOVE-AVERAGE SOCIOECONOMIC PROFILE
Residents benefit from easy access to the employment market in southern
Fairfield County via Interstate 95, the Merritt Parkway, and Metro North rail.
Residents are affluent, with median household incomes equal to 151% of the
national average and 115% of the state's high average. The city's July 2013
unemployment rate improved to 7.3% from 8% the year prior due to job growth
and a reduction in the labor force, and remains below the state's rate of
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. The top ten taxpayers
represent a moderate 8.4% of taxable value.
The tax base underwent a five-year revaluation effective Oct. 1, 2011 for
fiscal 2013 and values improved by 18.3%. The upward valuation was mostly due
to management's decision to freeze the five-year phase in of the 2006
revaluation after only 40% of the change in values had been realized. Market
value for fiscal 2014 is estimated at a large $9.2 billion compared to
assessed value of $6.4 billion. Top employers include the city's Board of
Education (BOE) with 1,106 workers, Subway world headquarters (870), Milford
Hospital (774), and Schick Manufacturing, Inc., the razor manufacturer (696).
SOUND FINANCIAL PERFORMANCE
The city's financial position continues to be sound. For fiscal 2012 the city
realized greater property tax collections, better than expected
intergovernmental revenues, and educational and healthcare savings. General
fund transfers out included $1.7 million to the city's capital non-recurring
fund, to cover in part costs incurred for Hurricane Irene damage and an annual
transfer of approximately $700,000 towards new vehicle acquisitions, per
policy. The city only used $2.5 million of the originally appropriated $4
million in fund balance resulting in a decrease in total unrestricted fund
balance (the sum of committed, assigned and unassigned) from $23.1 million to
$21.1 million, or a still sound 10.3% of general fund spending. Fiscal 2012
unassigned fund balance totaled $15.6 million, equal to 8.1% of revenues,
which is in line with management's informal goal of a minimum of 5% and target
of 7%-8%. Property taxes, excluding payment-in-lieu-of taxes from certain
utilities, made up a high 76% of fiscal 2012 revenues.
EXPECTATIONS FOR FISCAL 2013
The fiscal 2013 budget contained an overall modest 1.2% expenditure increase
for the city and schools, reflecting increases in salaries and wages. The 2013
budget did not include appropriation of any fund balance. Education funding,
which represents 58% of the city's general fund expenditures, was budgeted to
increase approximately 1.8% compared to the year prior.
Property tax revenues are projected to exceed budget due to stronger tax
collections and the sale of delinquent tax liens which were not budgeted for.
Other fee revenues also exceeded budget. The city had emergency expenses as a
result of Hurricane Sandy totaling $1.4 million and used unassigned fund
balance to cover these costs. Management expects close to full reimbursement
from FEMA and insurance coverage. To prevent a further use of reserves,
management imposed a hiring freeze and a freeze on overtime costs.
Expenditures were also reduced across all departments. In addition to the $1.4
million allocated for Hurricane Sandy, transfers out of the general fund
included $766,000 towards the vehicle replacement fund. Management is
projecting a solid $4.4 million surplus after transfers, on a budgetary basis.
For the city's fiscal 2014 budget, management has returned to its typical
practice of including a portion of fund balance to balance its budget and
reduce pressure on its mill rate. The budget includes a $5 million use of fund
balance and a 2.6% mill rate increase to 26.28. The city has historically not
used all of its appropriated fund balance and has kept an adequate level of
unrestricted reserves within its policy levels.
MODERATE DEBT BURDEN
Debt ratios are moderate with overall net debt of $175 million equal to $3,309
per capita and 1.9% of market value. Fiscal 2013 budgeted debt service is a
modest 7% of general fund spending, below the informal policy limit of 10%.
The five-year capital improvement plan includes approximately $78 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% of
debt retiring in 10 years and the city's restrictive annual debt service
RETIREE COSTS WELL-FUNDED
The city's single-employer pension plan was overfunded at 110% of the
actuarial accrued liability as of the plan's July 1, 2012 valuation, using an
8.25% discount rate. With Fitch's more conservative 7% rate adjustment, the
funded ratio would still be high at 97%. The city continues to make 100% of
its annual required contribution (ARC) and contributed $342,000 in fiscal
2012. The plan covers Milford's full-time employees with the exception of
teachers, who are covered by the state's poorly funded plan. The state is
responsible for costs related to teacher pensions.
The unfunded liability for OPEB is $265 million or a moderate 2.9% of market
value. The fiscal 2012 pay-as-you-go amount on a combined basis for the city
and BOE was $12.1 million (45% of the ARC). Management has established a trust
for the city's portion of future OPEB liabilities and trust assets totaled
$3.7 million at Aug. 30, 2013, as reported by management.
Total carrying costs for fiscal 2012 debt service, pension ARC, and OPEB
pay-as-you-go costs were a moderate to low 10% of total fiscal 2012
governmental spending. Fitch expects carrying costs to remain manageable.
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, IHS Global Insight, and 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);
-- 'Rating U.S. Municipal Short-Term Debt' (Nov. 27, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Rating U.S. Municipal Short-Term Debt
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Fitch Ratings, Inc.
Kevin Dolan, +1-212-908-0538
One State Street Plaza
New York, NY 10004
Patricia McGuigan, +1-212-908-0675
Laura Porter, +1-212-908-0575
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
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