(Source: Business Wire)
Fitch Ratings assigns an 'A-' rating to the city of New Haven, Connecticut's approximately $39 million general obligation (GO) bonds, issue of 2008, series B. The bonds are expected to sell competitively on Sept. 18, 2008, with proceeds funding various general government and school capital projects. In addition, Fitch affirms the rating on the city's approximately $528 million of outstanding GOs at 'A-'. The Rating Outlook is Stable.
The 'A-' rating reflects New Haven's stable economy, which is partially offset by weak economic indicators; limited financial flexibility and continued reliance on nonrecurring revenues to balance financial operations; high debt burden; and underfunded pension systems. Yale University (Yale) and Yale-New Haven Hospital anchor regional economic activity and provide stability to the local economy. However, the city's unreserved general fund balance remains low. A key rating driver is New Haven's continued commitment to maintaining reserve levels with the goal of achieving management's target level.
Located in south-central Connecticut along the north shore of the Long Island Sound, New Haven is a regional center for higher education, health care, transportation, and the arts. Population figures have stabilized since declines during the 1990s precipitated by job losses, high crime, and underperforming schools; the city's estimated 2007 population of 123,932 was nominally more than the 2000 census figure. Despite New Haven's high unemployment rate of 8.3% reported in June 2008, it continues to benefit from the stable presence of Yale, which is the city's largest employer. Ongoing and planned expansions by Yale and Yale-New Haven Hospital have attracted numerous biotechnology, pharmaceutical, and life sciences companies. However, income levels remain well below Connecticut and U.S. averages.
New Haven's financial position has weakened in recent years, marked by thin reserve levels and a continued reliance on nonrecurring revenues for operations. The fiscal 2007 unreserved general fund balance increased to $14.7 million but remained equal to a low 3.4% of expenditures, transfers out, and other uses. The city's general fund balance target of 5.0% of spending has not been met since fiscal 2002. However, phased-in tax base growth through fiscal 2012 and improving tax collection rates should help bolster New Haven's revenue base and reduce a reliance on economically sensitive state aid, the city's largest revenue source. City officials expect to close out fiscal 2008 with a slight general fund surplus of about $500,000, despite a $10.5 million shortfall in state aid; the city took prudent action early in the fiscal year to increase revenues and institute expenditure controls to correct a projected deficit. The city's fiscal 2009 adopted general fund budget totals $455.6 million, a modest 2.3% increase over the fiscal 2008 level. The budget assumes the resolution of ongoing labor negotiations.
Debt levels are high at $4,322 per capita, or 7.6% of taxable market value. An above-average debt service burden that equaled 13.6% of fiscal 2007 general and debt service fund expenditures is partially offset by a rapid debt amortization rate of 69.2% within 10 years. The fiscal years 2009-2013 CIP totals a manageable $202 million, with approximately one-third earmarked for schools, most of which will be offset by state grants. The city's two underfunded pension systems remain a credit concern, although the funded ratio for both plans increased in fiscal 2007; the city fully funds the annual required contribution to both plans. New Haven's OPEB liability, including school personnel, is a moderate $430.5 million. City management is in the process of establishing an irrevocable trust to help manage the liability. An irrevocable trust, assuming an annual 8.0% investment rate of return, reduces New Haven's OPEB liability to $304.8 million.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this underlying rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
