Fitch Ratings assigns the following ratings to the City of New Haven,
CT's (the city) general obligation (GO) bonds:
--$47 million GO refunding bonds, 2012 series A, at 'A+';
--$43 million GO bonds, 2012 series B, at 'A+'.
The series A bonds are scheduled to price via negotiation on Aug. 1, and
the series B bonds are scheduled to sell via competition on Aug. 7. The
series A bonds will finance various public improvement, school, and
urban renewal projects. The series B bonds will refund the city's
outstanding series 2002B and series 2004 bonds for cost savings and no
extension of maturity.
In addition, Fitch affirms the 'A+' rating on the following city
--Approximately $499 million outstanding GO bonds.
The Rating Outlook is revised to Negative from Stable.
The bonds are general obligations of the city backed by its full faith,
credit, and unlimited taxing power.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY IS LIMITED: The Negative Outlook reflects the
city's limited financial flexibility due to projected declines in
reserves to even lower levels coupled with rising fixed employee and
retiree costs. Potential savings from ongoing union negotiations are
expected to provide budget relief, but the outcome of negotiations and
the magnitude of the savings are uncertain.
INSTITUTIONAL PRESENCE DRIVES ECONOMY: New Havens' economy benefits from
the presence of higher education and healthcare institutions, including
Yale University and Yale-New Haven Hospital, which continue to attract
development and investment from biotechnology, pharmaceuticals and
BELOW AVERAGE WEALTH LEVELS: Wealth levels continue to trend below state
and national averages, and unemployment rates are high.
ABOVE AVERAGE DEBT RATIOS: The city's debt ratios are above average but
are expected to remain stable based on issuance plans and the rapid
amortization of existing debt.
HIGH FUTURE RETIREE COSTS: Although the city has historically funded
100% of its actuarially required contribution (ARC), pension and other
post employment benefit (OPEB) liabilities are high and costs are
WHAT COULD TRIGGER A RATING ACTION
DETERIORATION IN LIQUIDITY LEVELS: Results faring below projections over
the next fiscal year could potentially deplete the city's unrestricted
fund balance, putting downward pressure on the rating.
GROWING PENSION LIABILITIES: A lack of demonstrated progress towards
addressing the significant unfunded pension liability, which continues
to accumulate, could pressure the rating.
LIMITED FINANCIAL FLEXIBILITY; RESERVES REMAIN LOW
The city continues to experience pressure on its financial operations.
For fiscal 2012, management's conservative projection calls for a
shortfall from operations (after transfers) of approximately $7.4
million. The bulk of this shortfall is due to budgeted union concession
savings that were not realized fully or were realized later than
anticipated in the fiscal year due to lengthy union negotiations. Other
factors contributing to the use of reserves include higher than
anticipated medical benefit and police overtime costs.
The city expects to reclassify a $4 million reservation of fund balance
related to an advance to the internal service fund which would result in
an unrestricted fund balance (the sum of the assigned, unassigned, and
committed fund balance under GASB 54) for fiscal 2012 of $6.4 million or
a low 1.4% of budgeted fiscal 2013 spending. Even if results are better
than anticipated, the city's fund balance will be low for the rating
category and below the level of reserves historically maintained by the
In fiscal 2010, the city closed with a $1.7 million surplus, driven by a
$3.8 million one-time revenue from an asset sale. Despite the surplus,
audited results prepared by a new auditor showed a $7 million decline in
the unreserved fund balance, lowering it to $9.2 million, equal to a
slim 2% of spending. The city's new auditor reclassified amounts held in
the unreserved fund as advances to the self insurance fund ($4 million)
and advances to the city's education fund ($3 million) in anticipation
of food service costs which are reimbursed by the state. According to
management these advances would return to the general unreserved fund
when paid back by the respective funds.
Fiscal 2011 ended with a $650,000 surplus, driven by the receipt of $3.5
million from an asset sale. The city also received, unexpectedly, a
larger than anticipated reimbursement from the state for school
construction. Fiscal 2011 general fund unrestricted fund balance (the
sum of assigned, unassigned, and committed under GASB 54) remains weak
at $9.8 million or a low 2% of spending.
BALANCED 2013 BUDGET, BUT EMPLOYEE RELATED SAVINGS UNCERTAIN
The adopted $486 million fiscal 2013 general fund budget is a 2.4%
increase over fiscal 2012. No tax increase was implemented but
additional property tax revenue of $7.5 million is assumed due to the
new tax base growth. The budget does not include any fund balance
appropriation; however, the budget does include $2.5 million of savings
from employee contract negotiations yet to be finalized, although this
amount is down from $5.3 million in fiscal 2012.
Projected vacancy savings of $800,000 are also budgeted as well as no
salary increases. The uncertainty of the results of final settlement on
the city's open contracts remains a concern to Fitch. However, projected
savings have been decreased and only represent 0.5% of the budget. The
city continues to budget 100% of its pension annual required
contribution (ARC) and education funding by the city is up $1.2 million.
SELF INSURANCE FUND DEFICIT
The city's self-insurance fund ended fiscal 2011 with an accumulated
deficit of $17.3 million, including $10.7 million of reserves for
outstanding litigation. The city will use $6 million of the proceeds
from this new bond issuance to cure a portion of the deficit and plans
to debt finance an additional $6 million of the deficit in equal
increments over three years beginning in fiscal 2014. The plan for the
remaining $5 million deficit remains to be resolved.
ABOVE AVERAGE DEBT BURDEN
Overall debt levels, net of state school construction reimbursements,
are slightly above average at approximately $3,219 per capita, or 4.9%
of market value. Debt levels are expected to remain stable over the next
few years as additional planned debt will be offset by the rapid
amortization of existing principal (75% in 10 years). The city's
aggressive debt pay-out results in an above-average debt service burden
relative to the budget, totaling $65.7 million or 13.5% of spending for
The city's fiscal 2013-2017 capital improvement program (CIP) totals
$363.4 million, although actual spending is anticipated by the city to
be less as lower priority projects are expected to be pushed back or
cancelled. The current plan anticipates the delivery of $40 to $50
million annually in new money debt including school related issuances as
well as the potential borrowing to fund the remaining operating deficit
in the self-insurance fund.
PENSION FUNDING A CONCERN
Pension funded levels are low despite the city continuing to fund 100%
of its ARC. The city maintains two single-employer defined benefit plans
for general city employees and police and fire personnel. The most
recent actuarial valuation as of June 30, 2011 shows the funded levels
for the plans decreasing to 46% (general) and 50% (police and fire),
using the plans' 8.25% assumed investment return rate. Adjusting to
Fitch's more conservative 7% discount rate, the funded levels are 41%
and 46%, respectively. Pension costs are expected to increase and
currently represent a slightly high $41.2 million, or 8.5% of the fiscal
The city's unfunded OPEB liability was $414 million as of July 1, 2009,
the most recent data available. The city has set up an irrevocable trust
to fund future obligations, but currently funds obligations on a
pay-as-you-go basis. The city's pay-go obligation in fiscal 2011 was
$18.7 million, 50% of the ARC and 3.8% of fiscal 2011 spending.
To address the growing pension and OPEB liabilities, managements is
seeking significant concessions from its unions which if realized will
provide much needed budget relief for the city.
MIXED SOCIOECONOMIC INDICATORS
New Haven serves as a regional center for higher education, health care,
transportation and the arts. The presence of the city's top two
employers, Yale University and Yale New Haven Hospital, provide
stability to the economy and continue to attract development and
investment from biotechnology, pharmaceuticals and life-science
companies. Significant new developments have contributed to the city's
tax base growth and a number of projects are in the pipeline. These
projects are expected to increase employment opportunities and continue
to attract new businesses to the city. The recent property revaluation,
effective October 2011, showed an increase in the city's market value of
16% to $8.6 billion.
Several economic indicators remain below average despite the recent
development. Total employment increased by 1.1% in the past year,
decreasing the unemployment rate to a still high 11.6% for May 2012 from
12.7% a year prior. Wealth levels are below state and national averages
as has historically been the case.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and
the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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