Hat trick for Norwalk: Top bond ratings from Fitch, Moody’s, S&P

NORWALK, Conn. – Citing strong management practices, lower-than-average unemployment and a stable economy, all three major bond rating agencies have maintained Norwalk’s Aaa/AAA bond ratings.

The news was announced Wednesday afternoon by Norwalk’s Director of Finance, Tom Hamilton.

“I have now received confirmation from all three bond rating agencies that Norwalk’s Aaa/AAA bond ratings have been maintained,” he wrote in an email. “We are very pleased that Norwalk has retained the highest bond rating available in the municipal bond market, which means that Norwalk will realize the lowest interest rates that are prevailing in the municipal bond market on the date that we sell our bonds (Aug. 5).”

Hamilton wrote that $15 million in bonds will be issued to finance various capital projects, “principally the projects that were approved as part of the FY 2014-15 capital budget.”

Just over a third of that total is earmarked for school spending. The Board of Education is slated to get nearly $5.5 million, with a sizable chunk dedicated to implementing Common Core State Standards and another chunk for safety upgrades. Recreation and Parks is in line for nearly $3.5 million. But the biggest chunk goes to the Department of Public Works – $8,773,000, according to the final budget document – with another $1,950,000 headed for the Water Pollution Control Authority.

Moody’s wrote in its assessment, “The Aaa rating reflects the city’s healthy financial position, supported by comprehensive fiscal policies, conservative management practices and stable fund balance levels, as well as a manageable debt position. The rating further considers the city’s strategically-positioned local economy and stable sizable tax base with potential growth opportunities from ongoing redevelopment efforts.

“The stable outlook reflects Moody’s expectation that the city will maintain a stable financial position over the medium term and continue to benefit from its sizable and favorably located tax base.”

Moody’s listed as strengths:

• Structurally balanced financial operations
• Effective financial management
• Substantial tax base with above average wealth indices

Listed as challenges:

• Reserve levels remain below average
• Managing expenditure pressures in an environment of lower revenue growth

While pension plans have been blamed in many communities for serious financial woes, Moody’s praised Norwalk’s approach:

“The city maintains four defined benefit pension plans for substantially all city employees, with the exception of the faculty and professional personnel of the Board of Education. The city continues to contribute the full annual required contribution (ARC) for the plans, which was $7.3 million in fiscal 2013, or just under 2.3 percent of General Fund expenditures. The city’s combined adjusted net pension liability, under Moody’s methodology for adjusting reported pension data, is $306.7 million, or an average 0.98 times General Fund revenues. Moody’s uses the adjusted net pension liability to improve comparability of reported pension liabilities. The adjustments are not intended to replace the city’s reported liability information, but to improve comparability with other rated entities.

“Reflective of the city’s proactive management practices, the city established a trust to pre-fund its other post-employment benefit liability (OPEB). As of July 1, 2013 (most recent valuation date), the trust was 13 percent funded with an unfunded liability of $244.8 million. The city continues to phase-in full funding of its ARC. The city contributed 90 percent of its OPEB ARC in fiscal 2013. Given the city’s solid record of fiscal management, multi-year fiscal planning, and healthy existing fund balance levels we expect the city to maintain stable operations.”

Outlook:

“The stable outlook reflects our expectation that the city will continue to prudently manage its financial operations and maintain adequate reserve levels in line with its policy. Further, the city remains well positioned for future growth given ongoing development and favorable tax base location.”

Moody’s also addressed the city’s employment picture, the grand list and development.

“…Following the revaluation, the net grand list has grown less than 1 percent annually through fiscal 2014 and declined by 7.7 percent in fiscal 2015.

“In an effort to transform areas that are underperforming into mixed-use corporate, retail and residential centers, the Norwalk Redevelopment Agency has identified several areas for redevelopment. Major areas of focus include the South Norwalk ‘SoNo’ district, Waypointe and Berkley, Wall Street and Head of the Harbor, and the Reed Putnam development. The developments combined are expected to yield almost 3,000 residential units, 1.2 million square feet of office space, and 813,000 square feet of retail.

“Between the 2000 and 2010 census, the per capita (PCI) and median family (MFI) incomes, as a percent of the nation, increased to 158 percent and 148 percent from 147 percent and 136 percent, respectively. The full value per capita is a stronger $189,939, reflecting the value of real estate in the city, and the May 2014 unemployment rate of 5.8 percent remains below the statewide (6.9 percent) and national (6.1 percent) levels for the same period.”

Standard & Poor’s bestowed its AAA rating, backed up by this “rationale” list:

• Very strong economy supported by a stable property tax base and participation in the broad and diverse
• Bridgeport-Stamford-Norwalk metropolitan statistical area (MSA);
• Very strong management conditions with strong financial policies and practices;
• Very strong budgetary flexibility based on formally adopted reserve policy that limits unassigned general fund reserves to 10 percent of expenditures;
• Strong budgetary performance with consistent operating results in the general fund and total governmental funds;
• Very strong liquidity, providing sufficient cash to cover both debt service and expenditures;
• Very strong debt and contingent liability position that includes a low overall net debt burden and rapid amortization of principal.

Fitch Ratings also came in at AAA, citing mostly the same strengths as the other ratings services, and added this:

“The city continues to fund post-employment health care benefits (OPEB) above annual pay-go levels. The fiscal 2103 contribution was $16.5 million relative to benefit and administrative expenses of $11.7. An irrevocable trust was established in fiscal 2007 with assets of $37 million at the close of fiscal 2013. The unfunded accrued liability was $245 million as of July 1, 2013. “Fitch believes OPEB will not likely be a challenge for operations given the city’s fiscal 90 percent funding of the OPEB ARC.

“City charter requires the city to fully fund the annual actuarially required contributions, a practice Fitch views favorably. The city’s four pension plans are funded at a Fitch-estimated 73 percent on an aggregate level, using a 7 percent investment return rate. While this funding level is in the low side of midrange, the requirement of full ARC funding, recent pension reforms and prudent actuarial amortization assumption should lead to gradual improvement in the funded ratios. The total unfunded liability as of the July 1, 2013 actuarial report was a $94 million, or 2.2 percent of the market value of real property.

“The city’s total fiscal 2013 carrying costs for debt service, pension and current OPEB contributions were a moderate 13 percent of governmental spending.”

The full reports are attached below.

Fitch (1)

Moody’s

S & P rating report

2015 cap bud final