Fitch Affirms Griswold, CT's GOs at 'AA-'; Outlook Stable

Fitch Ratings affirms the following rating for the town of Griswold, Connecticut (the town):

--$17.5 million general obligation (GO) bonds at 'AA-';

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the town and backed by its full faith and credit and unlimited taxing authority.

KEY RATING DRIVERS

POSITIVE OPERATING TREND: A boost in the tax rate contributed to a fiscal 2013 operating surplus, reversing a period of structural imbalance. An operating surplus is also expected for fiscal 2014, bolstering the town's satisfactory financial position.

FAVORABLE WEALTH LEVELS: Wealth levels exceed national averages and the poverty rate is well below the national rate. Unemployment levels approximate the national rate.

MODERATE DEBT PROFILE: Overall debt levels are moderate and are expected to remain so as the town has minimal future borrowing plans.

RETIREE COSTS ARE MANAGEABLE: Annual pension and other post-employment benefit (OPEB) costs are low.

RATING SENSITIVITIES

STRUCTURAL BALANCE

Continued structural balance of financial operations is key to maintenance of the current rating.

CREDIT PROFILE

Griswold, with a 2013 population of 11,959, is a rural residential town that covers 37 square miles in New London County in southeast Connecticut.

IMPROVING FINANCIAL PROFILE

After a multi-year period of reserve use, a fiscal 2013 levy increase restored structural balance, with general fund property tax receipts increasing a sizable 11% over the prior year. The town's primary revenues are property taxes and state school aid, which represented 51% and 33% of fiscal 2013 general fund revenues, respectively. Education is the dominant expenditure, accounting for 83% of general fund expenditures. The town attracts tuition paying students from out of district, with fiscal 2013 tuition revenue of $1.5 million accounting for 4.4% of general fund revenue.

The general fund makes annual transfers to the capital fund for paygo financing and the fiscal 2013 transfer was $520,000 (1.6% of spending). Fiscal 2013 operations were budgeted for balance, but closed with a $238,000 general fund operating surplus, as debt service expenses were under budget due to deferral of a debt issuance.

The fiscal 2013 unrestricted fund balance totaled $2.8 million, or an adequate 8.3% of spending. The town strives to maintain an undesignated/unassigned fund balance in the range of 8.5% to 17% of spending, and the favorable fiscal 2013 results enabled the town to almost restore compliance with its policy.

Management expects to close fiscal 2014 with an approximate $400 thousand operating surplus due to better than budget revenue performance. The positive variance is attributable to tuition revenue for out of district students, and strong property tax collections. In fiscal 2014 the town began accepting credit cards for tax collections and collections strengthened. The fiscal 2015 budget is balanced and includes a 1% increase in the tax levy.

FAVORABLE ECONOMIC HEALTH

The town's 2011 median household income was 121.7% of the national median and the town poverty rate for 2012 was a low 9.1%. The unemployment rate was 6.4% for June 2014, comparable to the national rate of 6.3%. The town's population growth is comparable to national trends, and exceeds the growth rate statewide.

The town's economic base includes agribusiness and commercial concerns, with additional nearby employment opportunities within higher education, casinos and the Groton naval base. A wind turbine manufacturing plant is in the final phase of receipt of grant funds, and would represent a positive boost to the town's economic base. Additional commercial development is also reported.

Griswold's 2011 tax base revaluation resulted in a 15.2% tax base decline for fiscal 2013. The town is not subject to legal property tax rate limits and town management adjusted the mill rate to enable levy growth. The tax levy per capita remains among the lowest in the state. According to Zillow.com, Griswold home values have gone up 2.8% over the past year and Zillow predicts they will rise 2.9% within the next year. The improved housing market and prospects for nonresidential expansion, suggests moderate tax base improvement over the coming years.

MANAGEABLE LONG-TERM OBLIGATIONS

Overall debt is moderate at $1,945 per capita and 2.3% of market value. Annual debt service costs represented a very low 4.8% of fiscal 2013 governmental expenditures. All debt is fixed rate and the ten year amortization rate is 58%. Debt issuance has historically been for school projects. The town presently has $5.8 million in BANs outstanding due in May 2015, for interim financing of school projects. The town expects state reimbursements for the majority of BAN redemption. The town has minimal future capital expenditures that will be funded through available cash and state grants.

The town contributes to the state-wide Municipal Employees' Retirement System (MERS), a cost sharing multiple employer defined benefit plan. The Fitch adjusted funded ratio for the plan is 78.8%; the funded ratio has been stable. The town's fiscal 2013 pension contribution was $484,000 and the annual pay-go costs for OPEB obligations were $100,907 in fiscal 2013, or 36% of the ARC. The OPEB unfunded liability totaled $3.7 million as of July 1, 2012, or 0.4% of market value. Total carrying costs, debt service, pension ARC and OPEB contributions, were a low 6.5% of fiscal 2013 governmental 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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Zillow.com.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=878854

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