Fitch Rates Danbury, CT's GO Bonds 'AAA'; Outlook Stable
NEW YORK -- July 10, 2014
Fitch rates the following City of Danbury, CT (the city) general obligation
(GO) bonds and notes:
--$11,000,000 GO bonds, series 2014, 'AAA';
--$31,600,000 GO bond anticipation notes (BANs) 'F1+'.
The bonds and notes are scheduled to sell competitively on July 15. Proceeds
of the bonds will be used to refinance a portion of outstanding BANs and for
various general purpose and school projects. The BANs are being issued for
general city, school and sewer projects.
In addition, Fitch affirms the following ratings of the city:
--Approximately $140 million outstanding GO bonds at 'AAA'.
The Rating Outlook is Stable.
The bonds and BANs are general obligations of the city backed by its full
faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: The city's strong financial management implements
conservative budget decisions and has prudently raised annual revenues
contributing to consistently solid reserve levels. The city maintains a high
degree of financial flexibility.
ABOVE-AVERAGE SOCIOECONOMIC INDICATORS: The city's economic profile is strong
with a broad economic base and continued economic development. Economic
indicators include high income levels and below-average unemployment rates.
The city benefits from its proximity to New York City and Hartford employment
LOW DEBT LEVELS: The debt burden is low and is expected to remain so given the
rapid amortization of existing debt and the city's manageable debt plans.
FUTURE RETIREE COSTS WELL FUNDED: The city contributes 100% of its annual
required contribution (ARC) toward its pensions and funded levels are solid.
Other post-employment benefits (OPEB) are manageable and management prudently
plans to continue to increase its contributions gradually above pay-go over
the next few years.
STRONG MARKET ACCESS: The 'F1+' short-term rating reflects the strong credit
characteristics of the city and Fitch's expectation for strong market access.
MAINTENANCE OF FINANCIAL FLEXIBILITY: The rating is sensitive to a shift in
credit fundamentals including the city's overall level of financial
flexibility. The Stable Outlook reflects Fitch's expectation that such shifts
Danbury is the largest city in northern Fairfield County and has a 2013
population of 82,807 (up 10.6% since 2000). Danbury's unique location near
major interstates makes it accessible to New York City, Hartford and Norwalk,
all of which are within 60 miles.
SOUND FINANCIAL MANAGEMENT
The city maintains a healthy level of financial flexibility with consistently
solid general fund reserve balances. Management retains independent revenue
raising flexibility as there are no statutory tax limitations in Connecticut,
further enhancing financial flexibility. Additional flexibility is derived
from regular capital spending from the general fund.
The city ended fiscal 2013 with a moderate surplus of $171,746, after
transfers, in contrast to the $2.35 million appropriated fund balance. The
positive results reflect continued careful cost management and budgeted
savings due to vacant positions and lower debt service costs than originally
planned. Unrestricted fund balance improved to $27.9 million (a sound 11.9% of
spending) from $27.7 million the prior year.
FISCAL 2014 BUDGET ADJUSTED FOR TAX BASE DECLINES
The fiscal 2014 budget increased general fund spending by $7.25 million, an
increase of 3.3% compared to the fiscal 2013 budget. Property taxes represent
the largest revenue source and make up a high 80% of total general fund
revenues. Increases in spending were reflected across all areas including
education. Capital spending was increased by $1.4 million to $3.5 million.
The city's most recent state mandated five year property revaluation was
performed effective Oct. 1, 2012 for the fiscal 2014 budget year. The
revaluation resulted in a relatively high 13.5% decline in net taxable
assessed values (AV) as the last revaluation occurred in 2007 prior to the
recession. Management adjusted the tax rate to offset the decline in value and
prudently established an allowance of $1 million for uncollectable taxes and
impacts from tax appeals.
Management expects only a moderate use, if any, of the $2.35 million of fund
balance that was appropriated to balance the budget. Fitch finds these
projections to be reasonable based on management's conservative budget
practices and careful expense monitoring.
FISCAL 2015 BUDGET INCREASES REVENUES
The adopted fiscal 2015 budget includes an $8.4 million increase over fiscal
2014 and a 3.95% tax levy increase. A smaller $1.85 million use of fund
balance was approved, down $500,000 from the prior year, and part of
management's strategy to lessen its reliance on use of fund balance in future
LOW DEBT BURDEN
Overall debt levels are moderate at $2,101 per capita, but low as a percentage
of market value at 1.8%. Amortization of direct debt is rapid with 69% of
principal retiring within 10 years. Debt levels should remain moderate to low
given the rapid amortization rate and limited bonding plans.
FUTURE RETIREE COSTS WELL FUNDED
The city has historically funded its actuarially required contribution (ARC)
for its six pension plans at the required levels. In 2012, management lowered
its interest rate assumption for each of the plans to 7.25% from 8% and
pensions remain well funded. On an aggregate basis, the city's six pension
plans are 86% funded and using Fitch's 7% discount rate assumption, are an
estimated 84% funded. Fiscal 2014 costs increased to $9.7 million from $8.5
million for the prior fiscal year. The aggregate unfunded pension liability
totals $41.6 million as of July 1, 2012, the most recent valuation available,
or a low 0.4% of market value.
The city makes pay-as-you-go payments towards its OPEB obligations and such
costs are manageable. The unfunded OPEB liability as of July 1, 2012 totals
$134,076,100 and $20,393,300 for city and board of education employees,
respectively, or a manageable 1.5% of market value. Management has established
an OPEB reserve currently funded at $1.2 million and has included a $450,000
appropriation in its fiscal 2015 budget as a contribution to this reserve.
Management prudently plans to increase its OPEB funding by an additional 5%
each year until it reaches full funding of the ARC.
Carrying costs for debt service, pension and OPEB pay-go are currently low at
11.9% of fiscal 2013 total governmental spending but will likely increase
slightly as pension, OPEB and debt service costs increase over the next few
STRONG SOCIOECONOMIC INDICATORS
Danbury, located within 60 miles of New York City, Hartford, and Norwalk,
benefits from continued economic development and its role as an important
regional employment and retail center. The Western Connecticut Health Network
affiliated Danbury Hospital, which just completed a new 350,000 square foot
expansion last month, is the city's largest employer with 2,237 employees.
Other large employers include Boehringer-Ingelheim Pharmaceuticals (1,800
employees), GE Commercial Finance and Pitney Bowes. The city is also home to
Western Connecticut State University, one of four state operated universities.
The university had 4,465 full time students in fall of 2013.
The city's unemployment rate declined to 5.4% for April 2014 compared to 5.8%
the prior year, in part due to a 0.2% decline in labor force, and compares
favorably with the state (6.6%) and national (5.9%) averages. Income levels
register comfortably above national average, but remain below the
above-average Fairfield County and state levels.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight,
Zillow.com, 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).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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