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

Norwalk Finance Director Thomas Hamilton, left, and
Norwalk Finance Director Thomas Hamilton, left, and Director of Management and Budgets Bob Barron.

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.”


“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)


S & P rating report

2015 cap bud final


11 responses to “Hat trick for Norwalk: Top bond ratings from Fitch, Moody’s, S&P”

  1. Don’t Panic

    Please also report the fees paid to each credit rating agency and ask the City why it felt the need to be rated by all three.

  2. anon

    @Chapman, do you know why this is the case?

    “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.”

    1. Mark Chapman


      From BOE Chairman Mike Lyons:

      Pensions for certified staff (teachers, principals) in Connecticut are provided by the State, not local governments.

  3. Bruce Kimmel

    This, of course, is great news and, because the AAA rating allows the city to borrow at the lowest possible interest rate, will minimize the burden on taxpayers as we move forward with our various capital projects, especially our school renovations.
    Congratulations to our finance department, department heads, both Mayors Moccia and Rilling, the BOE, and to the many elected and appointed officials who made this possible by exercising fiscal prudence during difficult times.

  4. piberman

    Mr. Kimmel’s comments as Finance Chair of Common Council are distressing. Norwalk, like Stamford has long had top bond ratings for decades courtesy of New York’s financial and economic strength. Bond ratings paid for issuing entities, e.g. Norwalk, are solely concerned with ability to repay debt. To characterize them as superior management as does Mr. Kimmel shows unfamiliarity with municipal finance. If high bond ratings were really indications of superior management we’d be hard pressed to explain the City’s Grand List decline and stagnant property values 5 years into a vigorous national expansion. But then again City Council members find finance a difficult subject. We’d be hard pressed to find any new City homeowner who made a purchase decision on the City’s bond rating. Most potential homeowners avoid the City because of its punitive taxes and stagnant property values. And problems in governance.

  5. Taxpayer Fatigue

    Congratulations to our Finance Department and the BET for their sound fiscal management and governance. This is not easy to do given the pressures and needs of a city whose infrastructure has been neglected and underfunded for years – especially through a recession.

    As far as stagnant property values go, the only thing that is going to change that is for our school’s test scores to improve by at least ten to fifteen points so that they are at least in the same ballpark as our surrounding communities. There has been no significant statistical improvement in our test scores in years. Hopefully, Dr. Rivera and the BOE is going to change that in the next few years given all the additional expense and capital improvement funds we are giving them.

  6. Bill

    Keep up the good work Mike Lyons, do not let the haters drag you down.

  7. One and Done.

    Everyone remembers Enron, but even post Sarbanes Oxley and Dodd Frank acts these very rating agencies had MF Global at investment grade less than a week before it collapsed.
    The Professor is correct in his analysis. Ratings are based on ability to pay. Norwalk has an involuntary revenue stream of $300 million a year and $600 million in assets.
    Anyone who thinks this is from the marvelous work of some former NEON board chairman put on the BET out of political favor needs to have their head examined.

  8. Don’t Panic

    I still would like to know why we felt the need to get rated by all the agencies and how much we paid in fees for this little PR exercise. Prof. Berman is right. Ratings reflect ability to pay.

  9. EastNorwalkChick

    @Don’t Panic, ratings also determine what percentage rate you pay when borrowing money, the higher the rating, the lower the rate, thus saving the City money on interest expense.

  10. Don’t Panic

    I know that. Not my point. My point is that they felt the need to get ratings from ALL THREE agencies incurring three sets of ratings fees. I would like to know if the motivation behind that was just to be able to say all three rated us highly or if there is a business rationale for getting three instead of one or two. And if we are getting enough value from having THREE ratings to offset THREE sets of fees.

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