Fitch Rates Milford, CT's GOs 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA+' rating to the following Milford, CT (the city) unlimited tax general obligation (GO) bonds:

--$14 million GO refunding bonds, issue of 2012 series B.

The bonds will be sold competitively on Nov. 29th.

In addition, Fitch affirms the 'AA+' rating on approximately $99.7 million of outstanding GO bonds and the 'F1+' rating on $14.3 million in outstanding GO BANs which mature on May 2, 2013.

The Rating Outlook is Stable.

SECURITY
The bonds and notes are general obligations of the city, backed by its full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

SOUND FINANCIAL PERFORMANCE: Milford has maintained healthy reserves levels that provide for financial flexibility if pressures should arise.

FAVORABLE SOCIOECONOMIC INDICATORS: The economy is stable, with above-average market value per capita and wealth levels.

MODERATE DEBT BURDEN: Milford's debt burden is expected to remain moderate given the above-average amortization of existing debt and the city's manageable debt plans.

RETIREE COSTS WELL-FUNDED: Pensions are overfunded and other post-employment liabilities are manageable.

PROVEN MARKET ACCESS: The 'F1+' rating on the BANs reflects the city's strong long-term credit characteristics.

CREDIT PROFILE

FAVORABLE SOCIOECONOMIC INDICATORS
The city of Milford is located in New Haven County on the Long Island Sound between New Haven and Bridgeport. Residents benefit from easy access to the employment market in southern Fairfield County via Interstate 95, the Merritt Parkway, and Metro North rail. The city is primarily residential with some commercial and industrial presence represented by the Connecticut Post Shopping Center and power plant operator GenConn Devon LLC, a subsidiary of NRG Energy, Inc. Top employers include the city's Board of Education (BOE) with 1,112 workers, Milford Hospital (780), and Subway Restaurants world headquarters (903). The city's September 2012 unemployment rate has declined to 7.8% compared to a year prior and remains below the state rate (8.2%).

Residents are affluent, with median household incomes equal to 181% of the national average and 116% of the state's high level. Market value per capita is estimated at a high $174,000. The city underwent its five-year property revaluation in 2011 (effective fiscal 2013) which resulted in a $1 billion, or 18%, increase in taxable grand list. The increase is partially attributable to a three-year freeze of the phase-in of the prior five-year property revaluation performed in 2006.

SOUND FINANCIAL PERFORMANCE
The city's financial position continues to be sound. The city realized a $4.1 million surplus after transfers in fiscal 2011, which increased the unrestricted general fund balance (the sum of committed, assigned, and unassigned per GASB 54) to $23.1 million or 12.6% of total spending. Fiscal 2011 unassigned general fund balance totaled $12.8 million, equal to 7% of spending. Positive variances were attributed to higher than budgeted property taxes, as well as below-budget expenditures which contributed to better than expected operations. Property taxes made up a high 81% of fiscal 2011 revenue.

For fiscal 2012, the city is projecting the use of $1.7 million of the originally appropriated $4 million fund balance resulting in a positive budget variance of $2.3 million after transfers. Unaudited results report property tax collections and intergovernmental revenues coming in better than expected as well as savings across education and health care administration. Estimated fiscal 2012 year-end unassigned fund balance is anticipated to equal $12 million to $14 million, or a still sound 7% to 8% of spending. The city historically has not used all of its budgeted fund balance due to its conservative budgeting practices and has maintained undesignated (now unassigned) reserves in excess of its minimum policy of 5%.

EXPECTATIONS FOR FISCAL 2013
The fiscal 2013 budget contains an overall modest 1.2% expenditure increase for the city and schools, reflecting increases in salaries and wages. The city's fiscal 2013 budget does not include appropriation of any fund balance. Education funding, which represents the city's largest general fund expenditure, is budgeted to increase approximately 1.8% compared to the year prior. The Board of Education's (BOE) finances benefit from the restoration of state Education Cost Sharing grants in fiscal 2012, which were reduced in prior years. The BOE budget is set by the city council, and the BOE is not legally permitted to overspend its budgeted allocation.

MODERATE DEBT BURDEN
Debt ratios are moderate with overall debt equal to $3,138 per capita and 1.8% of market value. Fiscal 2013 budgeted debt service is a modest 7% of spending, below the policy limit of 10%. The capital improvement plans call for approximately $67 million in borrowing over the next five years, much of which is for school projects and sewer improvements. Fitch believes that the city's debt burden will increase but remain manageable due to its above-average amortization rate of 66% debt retiring in 10 years and the city's restrictive annual debt service policy.

RETIREE COSTS WELL-FUNDED
The city's single-employer pension plan was overfunded at 121% of the actuarial accrued liability as of the plan's July 1, 2011 valuation, using a liberal 8.5% discount rate. With Fitch's more conservative 7%, the funded ratio would still be high at 104%. In fiscal 2012 management contributed to the pension fund $342,000 and has budgeted $324,000 in fiscal 2013. The plan covers Milford's full-time employees with the exception of teachers, who are covered by a state plan.

The unfunded actuarial accrued liability (UAAL) for other post-employment benefits (OPEB) is $265 million or a sizable 4% of market value. The fiscal 2011 pay-as-you-go amount on a combined basis for the city and BOE was $8.7 million (34% of the ARC), equal to a high 4.8% of general fund spending. The city has taken prudent steps to mitigate its OPEB liability through its establishment of a trust. Trust assets totaled $2.7 million at October 2012, as reported by management.

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 the National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
14, 2012).

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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