News Column

Fitch Affirms Hingham, MA's GOs at 'AAA'; Outlook Stable

August 11, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following Town of Hingham, Massachusetts (the town) ratings:

--$48.3 million of outstanding general obligation (GO) bonds, series 2007, 2009A, 2009B, and 2010 at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the town secured by its full faith and credit and unlimited taxing authority.

KEY RATING DRIVERS

AFFLUENT SOCIOECONOMIC PROFILE: Positive economic indicators include very high income levels, high market value (MV) per capita, and exceptionally low unemployment and poverty rates. The town is predominantly residential, benefiting from its proximity to the Boston labor market.

STRONG FINANCIAL PERFORMANCE: Hingham's sound operating results and solid reserve levels are the result of its strong financial management, prudent fiscal policies and conservative budgeting practices.

LOW TO MODERATE DEBT LEVELS: Hingham's overall debt levels are manageable and not expected to change materially. Amortization of debt is very rapid.

MANAGEABLE EMPLOYEE RETIREMENT COSTS: Pension and other post-employment benefit (OPEB) expenses represent a manageable portion of the budget but are expected to increase as pension costs continue to rise. Liabilities are well managed.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the town's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

The town is located 20 miles southeast of Boston on the Atlantic coast. It has a 2013 population of 22,740 with an average annual growth rate of 1.1% over the last decade.

AFFLUENT BASE DRIVES ECONOMY

Hingham is an affluent residential community with wealth levels exceeding state and national averages by at least 50%. Unemployment rates improved to a low 3.6% in May from 5.4% the prior year and remain below state (5.2%) and national (6.1%) levels. The town's market value per capita is a very high $263,000 based on the town's $6 billion equalized value.

Healthcare, retail and service-related industries employ the largest percentage of people, with Blue Cross & Blue Shield the largest employer (1,237 employees), followed by the town (944) and Linden Ponds (836), a retirement/senior living facility. Talbot's maintains headquarters in the town, with 563 employees.

The town's taxable valuation declined modestly through the recession, stabilizing in fiscal 2013 at $5.1 billion, with solid growth of 9.4% in fiscal 2014 and further growth projected for future years. The top 10 taxpayers comprise property development, residential and retail firms and represent an average 10% of the tax base.

STRONG FINANCIAL PERFORMANCE

The town's financial profile remains strong, as operating surpluses in the last four fiscal years have bolstered general fund reserves to strong levels resulting in strong liquidity. Fiscal 2013 ended with a net operating surplus (after transfers) of $3.7 million (3.3% of general fund spending) for an unrestricted fund balance of $20.4 million (a healthy 22.2% of spending). Conservative budgeting of non-property tax revenues and lower than budgeted school expenditures contributed to the positive results. The town implemented a revised general fund balance policy last year and currently meets the required unassigned balance level of 16%-20% of expenditures.

Continued strong financial performance is expected for fiscal 2014. Management is projecting a $2.5 million addition to reserves (2.8% of budgeted spending) due to conservative revenue and expenditure budgeting. Fitch considers spending cuts made in past years to be moderate, providing additional flexibility going forward. The town's tax rate remains regionally competitive despite annually levying the maximum rate allowable pursuant to the state's Proposition 2 1/2 tax levy limitation. Proposition 2 1/2 is a two-prong test, whereby the tax levy cannot exceed 2.5% of the full and fair cash value and cannot exceed the prior year's maximum levy by more than 2.5% excluding new construction.

The maximum levy to levy increase for fiscal 2015 under Proposition 2 1/2 is $1.7 million. The fiscal 2015 general fund budget totals $95.9 million, an increase of 6.2% over the prior year, due to increases in education, fire safety, and debt service spending. The budget includes the use of a modest $215,000 of general fund balance (.2% of budgeted spending) for capital projects. Fiscal 2015 is the first year in which the town is budgeting meal tax revenues and has appropriated accumulated meal tax reserves of $2.3 million for tax relief.

LOW TO MODERATE DEBT RATIOS

Overall debt levels are moderate at $4,152 per capita and low at 1.6% of MV, reflective of the town's affluent tax base. Fiscal 2013 debt service paid from the totaled $7.9 million (an affordable 5.7% of governmental fund spending). The town's debt levels should not materially change especially as amortization is very rapid with 77% of par outstanding paid off in 10 years and future debt plans are not material.

MANAGEABLE EMPLOYEE RETIREMENT COSTS

Employee retirement benefit liabilities represent an affordable percentage of governmental fund spending and do not pressure financial flexibility. The town manages a defined benefit plan for its employees, excluding teachers, who are covered under the state's plan. The annual required pension contribution (ARC) for fiscal 2013 totaled $3.9 million or a manageable 2.8% of total governmental fund spending. The unfunded liability totaled $115 million as of January, 2013, or a low .65% of MV. Fitch estimates the plan to be funded at 63%, based on Fitch's conservative 7% investment rate of return.

Fitch views positively the town's efforts to manage its future OPEB liability through the establishment of a trust in fiscal 2008 and carefully managed employee health benefits, with retirees contributing 50% of health insurance costs. As a result, the unfunded liability has fallen from $114 million in 2009 to $55.1 million (0.6% of MV) in fiscal 2013.

For fiscal 2013, the town's carrying costs, including debt service, pension ARC, and OPEB contribution, totaled an affordable 11.7% of total governmental fund spending.

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.

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

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=849034

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

George M. Stimola

Analyst

+1 212-908-0770

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Kevin Dolan

Director

+1 212-908-0538

or

Committee Chairperson

Amy Laskey

Managing Director

+1 212-908-0568

or

Media Relations, New York

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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