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Standard and Poor's June 3, 2011 bond rating report for the Town of Chelmsford



Standard and Poor's June 3, 2011 bond rating report for the Town of Chelmsford

Standard and Poor's June 3, 2011 bond rating report for the Town of Chelmsford



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Standard and Poor's June 3, 2011 bond rating report for the Town of Chelmsford Document Transcript

  • 1. June 3, 2011Summary:Chelmsford, Massachusetts; GeneralObligationPrimary Credit Analyst:Andrew R Teras, New York 212-438-7983; andrew_teras@standardandpoors.comSecondary Contact:Victor Medeiros, Boston (1) 617-530-8305; victor_medeiros@standardandpoors.comTable Of ContentsRationaleOutlookRelated Criteria And Researchwww.standardandpoors.com/ratingsdirect 1 870648 | 300171391
  • 2. Summary:Chelmsford, Massachusetts; General ObligationCredit ProfileUS$4.866 mil GO mun purp loan of 2011 dtd 07/01/2011 due 01/15/2032 Long Term Rating AA-/Positive NewUS$3.737 mil GO swr bnds ser A dtd 06/15/2011 due 06/15/2031 Long Term Rating AA-/Positive NewChelmsford Twn GO Unenhanced Rating AA-(SPUR)/Positive Outlook RevisedRationaleStandard & Poors Ratings Services has revised its rating outlook to positive from stable on the Town ofChelmsford, Mass. general obligation (GO) debt and affirmed its AA- long-term rating and underlying (SPUR) onthe towns existing GO debt. Standard & Poors also assigned its AA- long-term rating, and positive outlook, toChelmsfords series 2011A GO sewer bonds and series 2011B GO municipal-purpose loan. The outlook revisionreflects our view of the towns improving reserve position.Other rating factors considered by Standard & Poors include the towns:• Maintenance of structurally balanced operations and increasing reserves from fiscals 2008 through 2010, after a period of annual fund balance drawdowns;• Strong financial management practices; and• Local economy with easy access to the Boston metropolitan area with above-average wealth and income indicators and low unemployment relative to state and national averages.Officials plan to use 2011A bond proceeds to finance the final installment of upgrades to the sewer system and willuse 2011B loan proceeds to fund various projects of the fiscal 2012 capital program.Chelmsford, with a population estimate of 33,800, borders Lowell, Mass., 24 miles north of Boston. Interstate 495and various state routes serve the town, making it a prime area for many commuters employed in easternMassachusetts and southern New Hampshire. Although Chelmsford is primarily residential, the town does maintaina commercial and industrial employment base. Roughly 22% of the towns employment consists of manufacturingconcerns while education and health care services account for 20% and professional and business services for 17%.Leading private employers include United Parcel Service of America Inc. (UPS) (1,700 employees) with eight othercompanies employing at least 300 each. Unemployment has historically been below commonwealth and nationalrates, and was estimated at 5.8% (seasonally unadjusted) for April 2011. Household income levels are, in our view,very strong: Median household and per capita effective buying income indicators are 149% and 140%, respectively,of national levels.Following several years of strong assessed valuation (AV) growth, the towns AV has decreased by 13% since fiscal2008, and is estimated at $4.6 billion in fiscal 2011. The declines stem from the soft real estate market and decliningStandard & Poor’s | RatingsDirect on the Global Credit Portal | June 3, 2011 2 870648 | 300171391
  • 3. Summary: Chelmsford, Massachusetts; General Obligationhome values. However, in our view, market value per capita remains extremely strong at $135,000. The tax base isdiverse with the 10 leading taxpayers accounting for less than 4% of total AV.Chelmsfords financial position continues to improve. At fiscal year end 2010 (June 30), the towns combinedunreserved general and stabilization fund balance (generally accepted accounting principles [GAAP] modifiedaccrual basis) increased to $7.2 million, or what we consider good at 6.8% of expenditures, which is up from $3.9million at fiscal year-end 2009. Town officials report that the 2011 budget is tracking favorably, and officialsproject another addition to reserves. After a transfer of free cash from the general fund, officials project thestabilization fund will have in excess of $6 million, which will allow the town to meet its policy target ofmaintenance of 5% to 10% of operating revenues in the fund. The 2012 adopted budget totals $104.7, representinga 2.45% increase from the revised 2011 budget. The tax levy will increase 3.45%, with the additional increaseabove the limit set by Proposition 2 1/2 allowable due to the realization of $800,000 in new property tax growth.Property taxes comprise 75% of budgeted revenues, followed by state aid funding at 14%, and local receipts at 8%.There is no use of stabilization funds to balance the budget.With officials expecting the towns reserve levels to be in adherence with its adopted policy target as of fiscalyear-end 2011, Standard & Poors now considers Chelmsfords financial management practices "strong" under itsFinancial Management Assessment (FMA) methodology, indicating financial practices are well-embedded and likelysustainable. Other management practices include multiyear budget forecasting, monthly reporting of revenue andexpenditure performance compared with budgeted levels to the town administrator and board of selectmen, and theformal adoption of debt management policies.The overall debt burden is, in our view, moderate at $2,051 per capita and low at 1.6% of market value. Weconsider the amortization of existing debt rapid with 70% of principal scheduled to retire over 10 years. With thisissuance, the town will have completed funding for expansion of the sewer system. Officials report the mostsignificant capital need for the near future is a new fire station costing an estimated $9 million; officials report theyare currently exploring financing options. Total debt service carrying charges amount to approximately 13% of2012 budgeted expenditures; however, debt service net of sewer debt paid from betterment fees amounts to 10% ofbudgeted expenditures.An additional long-term credit consideration is the towns considerable pension and other post-employment benefit(OPEB) liabilities relative to the size of its budget. The town participates in the contributory retirement system ofMiddlesex County and, as of the Jan. 1, 2010, actuarial valuation, the towns share of the systems unfundedactuarial liability was approximately $69 million. As of July 1, 2009, the towns OPEB unfunded actuarial accruedliability was estimated $162 million. Chelmsford routinely contributes 100% of its annual required pensioncontribution but only contributes the pay-as-you-go portion of its OPEB liability each year. The towns 2012budgeted combined contributions to the Middlesex Retirement System and the pay-as-you-go portion of its otherpost-employment benefits obligation amount to $9.2 million, or 8.8% of budgeted expenditures.OutlookThe positive outlook reflects our assessment of the towns restoration of structural budget balance and increasingreserves. Given our view of the towns strong economic indicators and financial management, we believe theindications of sustained improvement in the towns reserve position signals the likelihood that we could raise therating within two years. While beyond the scope of the two-year outlook horizon, we believe the towns largewww.standardandpoors.com/ratingsdirect 3 870648 | 300171391
  • 4. Summary: Chelmsford, Massachusetts; General Obligationpension and OPEB liabilities are a long-term credit risk that could pressure the rating if the funding needs for theseliabilities become a considerably larger part of the towns budget, or if these liabilities continue to grow significantly.Related Criteria And ResearchUSPF Criteria: GO Debt, Oct. 12, 2006Ratings Detail (As Of June 3, 2011)Chelmsford Twn GO Long Term Rating AA-/Positive Outlook RevisedChelmsford Twn GO (MBIA) (National) Unenhanced Rating AA-(SPUR)/Positive Outlook RevisedChelmsford Twn GO Unenhanced Rating AA-(SPUR)/Positive Outlook RevisedChelmsford Twn GO (CIFG) Unenhanced Rating AA-(SPUR)/Positive Outlook Revised Many issues are enhanced by bond insurance.Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal atwww.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poors publicWeb site at www.standardandpoors.com. Use the Ratings search box located in the left column.Standard & Poor’s | RatingsDirect on the Global Credit Portal | June 3, 2011 4 870648 | 300171391
  • 5. Copyright © 2011 by Standard & Poors Financial Services LLC (S&P), a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved.No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified,reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Contentshall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees oragents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors oromissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content isprovided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OFMERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENTS FUNCTIONINGWILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to anyparty for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, withoutlimitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact orrecommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in anyform or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/orclients when making investment and other business decisions. S&Ps opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary oran investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence orindependent verification of any information it receives.S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result,certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain theconfidentiality of certain non-public information received in connection with each analytical process.S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the rightto disseminate its opinions and analyses. S&Ps public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), andwww.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-partyredistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.www.standardandpoors.com/ratingsdirect 5 870648 | 300171391