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Fitch Affirms Town of Burrillville, RI GOs at 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following general obligation (GO) bond ratings for the Town of Burrillville, Rhode Island at 'AA':

--$4.88 million GO school bonds, series 1999 and 2000;

--$2.32 million GO refunding bonds, series 2002;

--$4.59 million GO bonds series 2006A and 2006B.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the town's full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

IMPROVED OVERALL FINANCIAL PROFILE: Strong financial management practices have led to an improved financial position over the past three years for both municipal and school department operations despite tax base declines and decreases in state aid.

STRONG FINANCIAL FLEXIBILITY: Revenue flexibility is reflected by tax rate increases that mitigated the revenue impacts of tax base and state aid declines. A robust unrestricted general fund balance of approximately 43% of expenditures at the end of fiscal 2011 provides the town with further financial flexibility.

MANAGEABLE DEBT BURDEN AND OTHER LIABILITIES: Debt service costs, pension and other post-employment (OPEB) obligations are manageable and expected to remain so over the long term; amortization rates are above average.

LOCAL ECONOMIC INDICATORS MOSTLY POSITIVE: Average wealth levels and a stable housing market are credit positives; however, the town continues to experience an above-average unemployment rate, and with the addition of TransCanada/Ocean State Power (OSP) to the tax rolls, the tax base is now concentrated.

CREDIT PROFILE

DECLINES IN STATE AID

In fiscal 2011, state aid represented approximately 11% of total general fund revenues down from a high of 20% in fiscal 2009. Continued cost cutting, elimination of non-essential services and purchases, and hiring freezes instituted since fiscal 2009 have mitigated the declines in state revenue and allowed the town to achieve surplus in fiscals 2009, 2010, and 2011. The town's reliance on state aid is minimal and as such, future reductions, while not expected, would have little effect on operations.

DESPITE CHANGES TAX BASE REMAINS STABLE

Following declines in state aid, property tax revenues accounted for 87% of general fund revenues in fiscal 2011. The primarily residential tax base declined 18% in fiscal 2011 to $1.36 billion, reflecting a three-year revaluation as of Dec. 31, 2009. However, the town increased its property tax rate to more than offset the loss in value, which Fitch views as a strong indicator of revenue flexibility. Taxable Value (TV ) growth in 2012 of nearly 10% was driven by the addition of TransCanada/Ocean State Power (OSP) to the tax rolls after the 20-year payment-in-lieu-of-tax (PILOT) program ended without a renewal agreement.

With a levy of approximately $2.5 million, OSP now represents 9% of the total tax levy. Risk related to tax base concentration is mitigated as the town does not rely on OSP for operating expenditures and plans to continue its practice of using OSP tax payments for capital improvements. OSP has appealed the property value assessment; however, the town has prudently set aside resources in its capital reserve fund to cover any related refunds, interest, and costs should the appeal be successful.

The town is in the process of another tax base revaluation for Dec. 31, 2012 and preliminary projections indicate flat-to-slightly increasing taxable values. The projections are reasonable given a recently approved expansion at Daniele Foods, one of the town's top employers, along with various other commercial and residential projects currently under construction or in the planning process.

CONTINUED FINANCIAL IMPROVEMENT

The town achieved a net surplus of $1.5 million (11% of expenditures) which increased the unrestricted general fund balance (the sum of assigned, unassigned and committed) to just over $13 million, or a robust 43% of expenditures. The 2011 surplus was driven by expenditure reductions and as well as the increase in the property tax rate. In addition, the town has approximately $5 million in unrestricted reserves outside of the general fund, further strengthening its ample financial flexibility. Fiscal 2012 unaudited results indicate modest growth in general fund reserves as well as a surplus in the school fund. Fitch notes a history of conservative budgeting and actual results that fare better than budget projections.

FIXED COSTS ARE MANAGEABLE

The town's overall debt levels are low with debt per capita at $1,863 and 2% of market value; amortization is very rapid with approximately 80% of principal retired within 10 years. There are no plans for additional debt as the town plans to continue using tax revenue from OSP to fund capital projects. Carrying costs (debt service, pension costs, and OPEB contributions) are a low 14% of general fund expenditures and are unlikely to increase significantly in the near term.

The town's police and general employees participate in the state's municipal employees' retirement system (MERS) and its teachers participate in the state's employees' retirement system (ERS). Using a conservative 7% rate of return both the police and general employees' plans are well funded at 89% and 95%, respectively, as of June 2011. ERS is currently funded below average at 57%. The town makes OPEB contributions on a pay-go basis and the liability as of July 2010 was low at 0.16% of total market value.

POSITIVE LOCAL ECONOMIC INDICATORS

Located in the northwest corner of the state on the border of Massachusetts and Connecticut, the town is a rural community with an advantageous location 20 miles from Providence, 22 miles from Worcester, and 45 miles from Boston. Population levels are flat at around 16,000. Due to its small population, income levels for the town were not available; however, the minor civil division data provided by the census indicates incomes are average to above-average with per capita income at 99% of the state and 104% of the nation. Median household income is above average at 123% and 130% of the state and nation, respectively. Unemployment in the town was 9.3% in June 2012 which while below the state rate of 10.3% was above the national rate of 8.4%.

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, and 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Fitch Ratings
Primary Analyst
Sara Ketchum, +1-212-908-0744
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Kevin Dolan, +1-212-908-0538
Director
or
Committee Chairperson
Kathy Masterson, +1-415-732-5622
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings