Fitch Rates New Haven, Connecticut's $30.5MM Rfdg GOs 'A-'; Stable Outlook

Business Wire,  May 22, 2008  

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NEW YORK -- Fitch Ratings assigns an 'A-' rating to the city of New Haven, Connecticut's (the city) approximately $30.5 million general obligation (GO) refunding bonds, issue of 2008. The bonds are expected to sell via negotiation on May 28, 2008, with proceeds refunding portions of the city's outstanding series 1996, 2002C, 2004, and 2005 bonds. In addition, Fitch affirms the rating on the city's approximately $513 million of outstanding GOs at 'A-'. The Rating Outlook is Stable.

The 'A-' rating reflects New Haven's stable economy, which is partially offset by weak economic indicators; limited financial flexibility and continued reliance on nonrecurring revenues to balance financial operations; high debt burden; and under funded pension systems. Yale University and Yale-New Haven Hospital anchor regional economic activity and provide stability to the local economy. However, the city's unreserved general fund balance remains low. A key rating driver for New Haven's long-term credit strength is increasing reserve levels to management's stated goal.

Located in southern central Connecticut along the north shore of the Long Island Sound, New Haven is a regional center for higher education, health care, transportation, and the arts. Population figures have stabilized since declines during the 1990s precipitated by job losses, high crime, and underperforming schools; the estimated 2006 population of 124,001 is nominally above the 2000 census figure. Despite the city's high unemployment rate of 8.2% reported in March 2008, the city continues to benefit from the stable presence of Yale University as its largest employer. Ongoing and planned expansions by Yale University and Yale-New Haven Hospital have attracted numerous biotechnology, pharmaceutical, and life sciences companies. Income levels are well below average, but strengthened employment base growth over the past two years indicates modest economic expansion.

The city's financial position has weakened in recent years, marked by reduced reserve levels and a continued reliance on nonrecurring revenues for operations. The fiscal 2007 unreserved general fund balance increased to $14.7 million, but remained a low 3.4% of expenditures, transfers out, and other uses. The city's general fund balance target of 5.0% of spending has not been met since fiscal 2002. However, phased-in tax base growth through fiscal 2012 and improving tax collection rates should help bolster the city's revenue base and diversify away from economically-sensitive state aid, the city's largest revenue source. Officials expect to end fiscal 2008 with balanced operations, despite a $10.5 million shortfall in state aid; officials took prudent action early in the fiscal year to increase revenues and institute expenditure controls to correct a projected deficit. The mayor's fiscal 2009 budget was revised to $455.7 million from $466.0 million after state funding fell short of expectations. Officials are examining a number of cost-saving measures to offset the decrease in revenues, and the board of alderman will vote on the budget in early June. The mayor's revised fiscal 2009 budget increases by 2.4% over the fiscal 2008 adopted budget.

Debt levels are high at $4,131 per capita and 7.3% of taxable market value. An above-average debt service burden (13.6% of fiscal 2007 general and debt service fund expenditures) is partially offset by a rapid debt amortization rate of 67.5% within 10 years. The fiscal years 2009-2013 CIP totals a manageable $193 million, with approximately one-third earmarked for schools, most of which will be offset by state grants. The city's two underfunded pension systems remain a credit concern, although the funded ratios for both plans increased in fiscal 2007; the city fully funds the ARC to both plans. New Haven's OPEB liability including school personnel is a moderate $430.5 million. Officials are evaluating funding options and intend to create an irrevocable trust to help manage the liability. An irrevocable trust assuming an 8.0% investment rate of return reduces the OPEB liability to $304.8 million.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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