NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings affirms the following City of Bridgeport, CT (the city) general obligation (GO) bonds:
--Approximately $600 million outstanding GO bonds, issued prior to 2008, at 'A'
The Rating Outlook is Stable.
KEY RATING DRIVERS:
The city's management team has made conservative debt and budget decisions helping it to manage its way through this recessionary period.
With tough expenditure cuts and successful negotiations with its labor unions, the city has reduced general spending and future employee benefit costs and built up reserves.
Debt ratios are slightly above average and pension and OPEB liabilities are high resulting in a high fixed cost burden limiting overall financial flexibility.
Economic indicators remain weak with high unemployment and below average wealth levels.
SECURITY:
The bonds are general obligations of the city and backed by its full faith and credit and unlimited taxing power.
CREDIT PROFILE:
Bridgeport is Connecticut's largest city, with a population of 144,229. It is located 63 miles north of New York City and abuts the Towns of Fairfield, Trumbull and Stratford, CT. The city has a diverse economic base with the largest employers in health care, higher education, manufacturing and financial services. However, historically high unemployment rates (14.1% as of May 2011) and below average wealth levels underscore weakness in the local economy.
In fiscal 2010 the city generated a $4.9 million surplus after transfers due to the city's pro-active efforts in collecting taxes, a freeze on certain expenditure items, employee layoffs and a hiring freeze. This surplus boosted the general unreserved fund balance to $15.6 million or 3.3% of spending, a level generally consistent with this rating category. This increase is an improvement from the low $10.6 million (2.2% of spending) balance in fiscal 2008. The city's fiscal 2011 budget was balanced and did not include the appropriation of any fund balance. Operating expenses were $3.3 million lower than fiscal 2010, excluding pension and contractual salary increases, and only a 1 mill rate increase was adopted that reflected a voter-approved millage increase for library funding. The city estimates breakeven results for fiscal end 2011.
After reducing its workforce by 200 over the previous two years (-14% of total workforce), no additional layoffs were included in the 2012 budget. Spending was reduced by $1.3 million as a result of smaller department budgets, the reining in of police overtime and the achievement of union concessions. Concessions granted by bargaining units include mandatory 25% healthcare contributions from all employees, excluding teachers, by July 1, 2012. Additionally the fire fighters' pension plan that was operated by the city will be converted to the state-operated Municipal Employees' Retirement Fund (MERF) in fiscal 2012 resulting in additional contribution savings for the city. These concessions are estimated to result in at least $3 million in expenditure savings to the city in fiscal 2012 and 2013. The fiscal 2012 budget includes neither one-time revenues nor the use of fund balance, which Fitch views favorably.
Overall debt ratios are above average with debt to market value at 6.3% and debt per capita at $4,440, including the city's pension obligation bonds. Future debt needs include $15 - 20 million for pending school projects with bonds anticipated to be issued later this fall. The city has historically issued tax anticipation notes (TANs) to supplement cash flow needs and anticipates the issuance of $70 million in TANs this fall. Annual debt service for fiscal 2010, inclusive of debt service for pension obligation bonds, was an above-average 15% of general fund spending.
The city administers four defined benefit pension plans for public safety, janitors and engineer employees. Other employees are covered under the state-operated MERF and the State Teachers' Retirement System. In August 2000, the city issued $350 million in pension obligation bonds to finance 79% of its then unfunded liability under its public safety Plan A, closed to new enrollees since Jan. 1984. The bonds were issued pursuant to state statutes and the city is required to make its actuarially recommended contribution and maintain the 79% funded ratio that was borrowed for. Due to the recent economic downturn, special legislation was passed by the Connecticut General Assembly in 2009 that permitted the city to limit its pension contribution for its Plan A to $6 million for fiscal 2009, well below the annual required contribution (ARC) of $9.6 million. For fiscal 2010 the city contributed $4.7 million (38% of its ARC) and $4.6 million in 2011, which was greater than the $4 million allowed minimum contribution pursuant to the state waiver legislation but still well below the ARC.
For fiscal 2012 the city sought a continued state waiver from the full actuarially required contribution and the state approved a 24-year level 5% amortization of the unfunded liability. Annual contributions for 2012 equal $7 million (2% of general fund budget) and increase to $10.5 million and $11.6 million in fiscal 2013 and 2014 respectively. The unfunded liability for the Plan A pension plan was $147 million at July 1, 2010 and the plan was 57% funded, assuming an 8% investment rate of return. Using Fitch's more conservative 7% discount rate, this amount decreases to a low 51%.
The funding condition of the other city plans has been better. In fiscal 2010, the city contributed 97% and 99% of its ARC to the city-operated police and fire pension plans, respectively, totaling a combined $7.6 million. As of July 1, 2009 the city operated police and fire plans were 85% and 80% funded, respectively. For MERF, the city contributed $5.6 million, equal to the required contribution. The city makes pay-go payments for its janitor and engineer plan and paid $985,409 in fiscal 2010.
The total amount of these annual pension contributions combined with Plan A contributions and annual debt service costs equals a high fixed cost burden of 20% of general fund spending. This burden will escalate with increased pension funding requirements for the city's Plan A pursuant to the state enacted legislation governing such contributions for the city. Offsetting these increased costs somewhat is a descending debt service schedule.
The city funds it OPEB costs on a pay-go basis. As of July 1, 2008, the latest available calculation date, the city unfunded OPEB liability was a high $861 million, or 8.5% of market value. The city is having a full updated actuarial analysis done on its OPEB obligations this year and with the new labor concessions in place that require higher healthcare contributions from its employees, OPEB liabilities are expected to be lower.
On July 5 the city school board voted to have the state board of education reconstitute its board by replacing the current board members. The state agreed to the city's request and replaced the city's board with six new members on August 5. According to city officials, the reconstitution of its school board has no financial effect on the city's operations as the school board is required by state law to operate within the budget approved by the city.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the 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 National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 16, 2010);
--'U.S. Local Government Tax-Supported Rating Criteria' (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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