News Column

Fitch Affirms Tolland, CT's GO Bonds at 'AA+'; Outlook Stable

July 31, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed its 'AA+' rating on the following Town of Tolland, CT (the town) general obligation (GO) bonds:

--Approximately $30 million outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the town's full faith and credit and unlimited taxing authority.

KEY RATING DRIVERS

CONSISTENTLY STABLE FINANCIAL RESULTS: Tolland's management team adheres to prudent fiscal policies and conservative budgeting practices resulting in consistently sound operating results. The Stable Rating Outlook reflects Fitch's belief that these practices will continue and financial flexibility will remain strong.

SOUND RESERVE LEVELS: Reserve levels have consistently been maintained within town policy limits, providing solid financial flexibility.

MODERATE DEBT PROFILE: Debt ratios are expected to remain moderate even with planned future issuances due to rapid principal amortization and restrictive debt policies.

STRONG SOCIOECONOMIC INDICATORS: Wealth levels are above average and unemployment rates are low relative to the state and nation.

MODEST EMPLOYEE BENEFIT COSTS: The town does not offer a traditional pension plan but instead provides a defined contribution plan to its employees (excluding teachers). Costs for this plan and other post-employment benefit (OPEB) obligations are very low.

RATING SENSITIVITY

MAINTENANCE OF FINANCIAL FLEXIBILITY: The rating is sensitive to a shift in credit fundamentals including the town's overall level of financial flexibility. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Tolland is a primarily residential community located in central Connecticut about 20 miles northeast of Hartford. Its population of 14,915 is up 13.5% since 2000. Tolland is seven miles from the University of Connecticut's (UConn) flagship campus at Storrs, and within commuting distance of metropolitan Hartford.

STRONG FINANCIAL CONDITION

Tolland has a history of stable finances and consistently solid reserves that promote financial flexibility. A periodic use of reserves for pay-as-you-go capital improvements is the norm but management has raised revenues as necessary to meet expenditure growth.

Property tax revenues are the largest revenue source and represent approximately 76% of the fiscal 2014 general fund budget. Intergovernmental revenues, which includes state school aid and grants represents 22% of revenues. The primary expenditure driver is education which represents 70% of the budget.

Fiscal 2013 operating performance (before transfers for capital) was again positive as tax revenues, state aid and building permits exceeded budget. Expenditures performed as expected with a small positive variance. Management continued its practice of funding its capital improvement fund and made transfers out of $172,000 to this fund. Unrestricted fund balance at fiscal end 2013 was a sound $7.7 million or 13.7% of spending. Unassigned fund balance of $6.6 million represented 12% of expenditures, within the town's 8%-15% policy. Although total fund balance declined by a small $132,000 in fiscal 2013, the town had experienced surplus operations and growth in its fund balance each year since fiscal 2004.

POSITIVE RESULTS PROJECTED FOR FISCAL 2014

The fiscal 2014 budget of $52 million included a small tax rate increase of 0.67% which follows a 2.88% increase in fiscal 2013. The budget included an appropriation of $361,042 in fund balance which is a standard practice to help lessen tax increases. Typically the appropriation is not needed due to positive operating results. Moderate increases in utilities, salaries and health benefits were the primary expense drivers. Management is projecting a budgetary surplus of approximately $300,000 with no need to use appropriated fund balance. Unrestricted fund balance is projected to exceed 14% of spending. Both revenue and expenditure variances were positive. Tax collection rates remain very strong at over 99%.

The fiscal 2015 budget includes a 2.85% tax rate increase (0.86 mills) and a 3.3% increase ($1.3 million) in the tax levy. Town and school expenditures are budgeted to increase by just over 3%, offset by a decline in debt service and capital improvement costs. An appropriation of $259,000 of fund balance was included in the budget. State aid remains flat.

MARGINAL TAX BASE GROWTH

Tolland's grand list (taxable assessed value) totals $1.3 billion for fiscal 2015 and has experienced growth of 1% or less in each of the last four years. A statutorily required five year revaluation is scheduled for October 2014 and based on results seen in other municipalities in the state both Fitch and management expect a decline in value. However, there is no limit on the increase in property tax rates in Connecticut.

Prospects for economic expansion have improved as the town has completed the installation of public water and sewer lines and approved zoning regulations in its Technology Corridor Zone along Route 195 and in the town's Gateway Area. The Gateway area north of I-84, now known as the Tolland Village Area, is expected by management to be improved with mixed residential, retail and office development in the future. Other development projects include the commencement of construction of a new 14 lot single family subdivision, and the anticipated approval this summer by town officials for a new 87 unit multi-family development.

MODERATE DEBT PROFILE

Overall debt levels, including capital leases but net of school construction grants, are moderate at $2,724 per capita and 2.1% of an estimated market value of $1.86 billion. Comprehensive planning and policies requiring annual pay-as-you-go capital spending have historically kept long-term borrowing to a minimum.

Debt issuance over the next six years is projected at just under $13 million and should ensure a moderate debt burden going forward. Amortization is rapid, with 84% of bond principal retired in 10 years.

ABOVE-AVERAGE WEALTH LEVELS; LOW UNEMPLOYMENT

Tolland benefits from a well-educated labor force with above-average income levels. Median household income represents 194% of national and 148% of already high state levels. Unemployment rates of 4.6% in June improved from 6.1% the prior year as both labor force and jobs grew. Rates remain below the state (6.4%) and national levels (6.3%).

LOW EMPLOYEE BENEFIT COSTS

The town benefits from having a defined contribution plan for all of its employees, with the exception of teachers and elected officials, and contributed $244,790 to the plan during fiscal 2013, representing 6% of covered payroll. Teachers participate in the state plan for which the town has no liability.

Tolland's unfunded OPEB liability was a modest $4.67 million as of July 1, 2012 and was 8% funded. The town paid $549,000 towards these costs in fiscal 2013 equal to a notable 101% of the annual required contribution.

Total carrying costs for debt service, defined plan contributions and OPEB were a low 9% of total governmental spending for fiscal 2013.

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, Zillow.com, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (August 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (August 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=843400

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Kevin Dolan

Director

+1-212-908-0538

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Michael Rinaldi

Senior Director

+1-212-908-0833

or

Committee Chairperson

Amy Laskey

Managing Director

+1-212-908-0568

or

Media Relations

Elizabeth Fogerty, New York, Tel: +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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