NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings affirms the following Town of West Warwick, RI's (the town) general obligation (GO) bonds:
--$4.3 million GO bonds, series 2007, at 'BBB+';
--$2.1 million GO Bonds, series 2005, at 'BBB+';
--$7.4 million GO bonds, series 2002A, at 'BBB+'; and
--$0.3 million GO bonds, series 2002B, at 'BBB+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The town has managed its operating expenses and achieved positive results in fiscal 2010, helping to increase its reserve levels but pension contributions remain well below actuarially required levels.
--Unfunded pension and other post employment benefit (OPEB) liabilities are very high.
--The school fund has overspent its budget in prior years resulting in a deficit fund balance, although operating results have improved.
--Wealth levels are below average and unemployment rates remain high.
--The town's debt levels are low with rapid amortization and future capital needs are limited.
KEY RATING DRIVERS:
--Demonstrated progress towards eliminating the school fund's deficit.
--Improvement in annual pension contributions.
--Maintenance of adequate reserve levels within town policy limits.
SECURITY:
The bonds are general obligations of the town and secured by its full faith and credit.
CREDIT SUMMARY:
West Warwick is 11 miles south of Providence and has a population of 29,446. The town was formerly an industrial and textile center and progress has been made in industrial diversification with several larger former textile mills converted to multiple tenancy by smaller, newer businesses. In addition, small retail expansion has occurred and Thundermist health center moved its operations within the town to a new facility and is reported to be investing over $6 million for the upgrade. Taxable assessed value (AV), net of exemptions, remained flat for fiscal 2011 at $2.3 billion after an 18% decline in 2010 (based on the Dec. 31, 2009 revaluation) which was due primarily to depressed housing prices. Management has indicated that there has been a slight up-tick in the housing market this year. The decline in AV does not affect the limit on the annual tax levy. Top 10 taxpayer concentration is low at 5%, based on fiscal year 2010 gross AV. Wealth levels are slightly below state and national averages. Unemployment remains elevated at 12.4% in May 2011 compared to 13.2% the year prior and higher than the state average of 10.9%.
After three years of deficits the town was able to generate a surplus of $2.3 million for fiscal 2010 increasing its unreserved general fund balance to $5.1 million or an adequate 6% of spending. The town has been proactive in holding the line on general town operating expenses the last three years by effectively managing the reductions in state revenues, reducing its workforce by 22%, and limiting property tax increases. However, the fiscal 2010 actuarially required contribution (ARC) for the town's pension was significantly underfunded (by $3.3 million) as it has been for the past few fiscal years. A hiring freeze continued in fiscal 2011 but due to a sizable number of employee retirements requiring vacation and sick leave payouts, management is projecting a possible small deficit for fiscal 2011. This incorporates an even lower pension contribution than in fiscal 2010.
As in fiscal 2011 no property tax increase was imposed or general fund balance used in its budget for fiscal 2012. The town has kept its motor vehicle exemption level at $3,000, although the state permits municipalities to reduce it to as low as $500. Negotiated concessions with its unions result in a projected $4.8 million savings over the next two fiscal years as wages were either frozen or reduced for some employees, vacation time was reduced and the minimum age to retire was increased for new hires.
The school fund ended fiscal 2009 with a negative fund balance of $3.07 million, or 4% of the GF budget. Under what is known as a Caruolo action, the town was facing a lawsuit brought by its school department seeking $3.3 million in additional local appropriation for fiscal year-end 2009. The case was dismissed by the court and the school department was required to reduce its spending and manage operations within its budget. No formal plan has yet been submitted to or approved by the state as to how to eliminate the school fund deficit.
For fiscal 2010, the school department budget was flat funded and audited results show a $361,000 surplus in school fund operations. School officials eliminated 19 positions, closed an elementary school and consolidated schools and services to produce annual cost savings during fiscal 2010. For fiscal 2011, the school department is projecting a $1.2 million surplus due to continued cost savings and reductions in staff. The town has kept fiscal 2012 funding to the school department flat compared to fiscal 2011 levels.
Fitch is concerned that the trend of reduced pension contributions from already inadequate levels will significantly increase financial pressure in the future. The town operates a municipal employees' pension plan and contributes to the state School Teachers Retirement Plan for its teachers.
The funded ratio for the town-operated plan was only 30% as of July 2009. The town fully funds the ARC for the state plan annually but historically has made less than 100% of its ARC for the town operated plan. The fiscal 2010 contribution was only $2.5 million towards its $5.8 million ARC (43%). For fiscal 2011, the town contributed $2 million representing 29% of its ARC and has budgeted $1 million in fiscal 2012 which represents a minimal 13% of its ARC. The state has coordinated a special session to discuss state and local pension issues and potential reform which may provide some relief to local governments, although the outcome of this session is uncertain.
The town's unfunded OPEB liability as of June 30, 2008 was $137 million with a fiscal 2010 ARC of $9.3 million. The town is currently making pay-go payments which totaled $3.6 million in fiscal 2010.
Overall debt levels are very low at 1% of AV and $913 per capita. The town currently has no imminent borrowing plans and has made capital improvements on a pay-as-you-go basis. Debt amortization is above-average with 72% of par maturing in 10 years. Total general fund debt service represents a manageable 5.4% of general fund spending.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, 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', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 08, 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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