Summary:
Chelmsford, Massachusetts; General
Obligation
Primary Credit Analyst:
Andrew R Teras, New York 212-438-7983; andr...
Summary:
Chelmsford, Massachusetts; General Obligation
Credit Profile
US$4.866 mil GO mun purp loan of 2011 dtd 07/01/2011...
home values. However, in our view, market value per capita remains extremely strong at $135,000. The tax base is
diverse w...
pension and OPEB liabilities are a long-term credit risk that could pressure the rating if the funding needs for these
lia...
S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of...
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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

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

  1. 1. Summary: Chelmsford, Massachusetts; General Obligation Primary Credit Analyst: Andrew R Teras, New York 212-438-7983; andrew_teras@standardandpoors.com Secondary Contact: Victor Medeiros, Boston (1) 617-530-8305; victor_medeiros@standardandpoors.com Table Of Contents Rationale Outlook Related Criteria And Research June 3, 2011 www.standardandpoors.com/ratingsdirect 1 870648 | 300171391
  2. 2. Summary: Chelmsford, Massachusetts; General Obligation Credit Profile US$4.866 mil GO mun purp loan of 2011 dtd 07/01/2011 due 01/15/2032 Long Term Rating AA-/Positive New US$3.737 mil GO swr bnds ser A dtd 06/15/2011 due 06/15/2031 Long Term Rating AA-/Positive New Chelmsford Twn GO Unenhanced Rating AA-(SPUR)/Positive Outlook Revised Rationale Standard & Poor's Ratings Services has revised its rating outlook to positive from stable on the Town of Chelmsford, Mass.' general obligation (GO) debt and affirmed its 'AA-' long-term rating and underlying (SPUR) on the town's existing GO debt. Standard & Poor's also assigned its 'AA-' long-term rating, and positive outlook, to Chelmsford's series 2011A GO sewer bonds and series 2011B GO municipal-purpose loan. The outlook revision reflects our view of the town's improving reserve position. Other rating factors considered by Standard & Poor's include the town's: • 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 will use 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 495 and various state routes serve the town, making it a prime area for many commuters employed in eastern Massachusetts and southern New Hampshire. Although Chelmsford is primarily residential, the town does maintain a commercial and industrial employment base. Roughly 22% of the town's employment consists of manufacturing concerns 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 other companies employing at least 300 each. Unemployment has historically been below commonwealth and national rates, 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 town's AV has decreased by 13% since fiscal 2008, and is estimated at $4.6 billion in fiscal 2011. The declines stem from the soft real estate market and declining Standard & Poor’s | RatingsDirect on the Global Credit Portal | June 3, 2011 2 870648 | 300171391
  3. 3. home values. However, in our view, market value per capita remains extremely strong at $135,000. The tax base is diverse with the 10 leading taxpayers accounting for less than 4% of total AV. Chelmsford's financial position continues to improve. At fiscal year end 2010 (June 30), the town's combined unreserved general and stabilization fund balance (generally accepted accounting principles [GAAP] modified accrual basis) increased to $7.2 million, or what we consider good at 6.8% of expenditures, which is up from $3.9 million at fiscal year-end 2009. Town officials report that the 2011 budget is tracking favorably, and officials project another addition to reserves. After a transfer of free cash from the general fund, officials project the stabilization fund will have in excess of $6 million, which will allow the town to meet its policy target of maintenance of 5% to 10% of operating revenues in the fund. The 2012 adopted budget totals $104.7, representing a 2.45% increase from the revised 2011 budget. The tax levy will increase 3.45%, with the additional increase above 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 town's reserve levels to be in adherence with its adopted policy target as of fiscal year-end 2011, Standard & Poor's now considers Chelmsford's financial management practices "strong" under its Financial Management Assessment (FMA) methodology, indicating financial practices are well-embedded and likely sustainable. Other management practices include multiyear budget forecasting, monthly reporting of revenue and expenditure performance compared with budgeted levels to the town administrator and board of selectmen, and the formal 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. We consider the amortization of existing debt rapid with 70% of principal scheduled to retire over 10 years. With this issuance, the town will have completed funding for expansion of the sewer system. Officials report the most significant capital need for the near future is a new fire station costing an estimated $9 million; officials report they are currently exploring financing options. Total debt service carrying charges amount to approximately 13% of 2012 budgeted expenditures; however, debt service net of sewer debt paid from betterment fees amounts to 10% of budgeted expenditures. An additional long-term credit consideration is the town's considerable pension and other post-employment benefit (OPEB) liabilities relative to the size of its budget. The town participates in the contributory retirement system of Middlesex County and, as of the Jan. 1, 2010, actuarial valuation, the town's share of the system's unfunded actuarial liability was approximately $69 million. As of July 1, 2009, the town's OPEB unfunded actuarial accrued liability was estimated $162 million. Chelmsford routinely contributes 100% of its annual required pension contribution but only contributes the pay-as-you-go portion of its OPEB liability each year. The town's 2012 budgeted combined contributions to the Middlesex Retirement System and the pay-as-you-go portion of its other post-employment benefits obligation amount to $9.2 million, or 8.8% of budgeted expenditures. Outlook The positive outlook reflects our assessment of the town's restoration of structural budget balance and increasing reserves. Given our view of the town's strong economic indicators and financial management, we believe the indications of sustained improvement in the town's reserve position signals the likelihood that we could raise the rating within two years. While beyond the scope of the two-year outlook horizon, we believe the town's large www.standardandpoors.com/ratingsdirect 3 870648 | 300171391 Summary: Chelmsford, Massachusetts; General Obligation
  4. 4. pension and OPEB liabilities are a long-term credit risk that could pressure the rating if the funding needs for these liabilities become a considerably larger part of the town's budget, or if these liabilities continue to grow significantly. Related Criteria And Research USPF Criteria: GO Debt, Oct. 12, 2006 Ratings Detail (As Of June 3, 2011) Chelmsford Twn GO Long Term Rating AA-/Positive Outlook Revised Chelmsford Twn GO (MBIA) (National) Unenhanced Rating AA-(SPUR)/Positive Outlook Revised Chelmsford Twn GO Unenhanced Rating AA-(SPUR)/Positive Outlook Revised Chelmsford 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 at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web 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 Summary: Chelmsford, Massachusetts; General Obligation
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