Fitch Affirms Bridgeport, CT's GO Bonds at 'A'; Negative Outlook Maintained
Posted in the Trumbull Forum
#1 Jun 20, 2014
addition, Fitch withdraws the rating on the city's GO bonds series 2004A (all maturities) as these bonds have been pre-refunded.
The Negative Rating Outlook is maintained.
The bonds are general obligations of the city and backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY LIMITED: The Negative Outlook reflects Fitch's opinion that the city faces continued fiscal challenges and limited flexibility. Management has made progress in stabilizing its budget with successful negotiations with its unions, but reserve levels remain low and are not expected to increase materially in the near term as employee-driven costs pressure the budget and new tax base growth is slow to develop.
HIGH UNFUNDED FUTURE EMPLOYEE COSTS: Large unfunded pension and other post-employment benefit (OPEB) and internal service fund liabilities remain a burden and are expected to continue to pressure the budget. However, management has successfully negotiated higher health insurance contributions from its employees as well as the transfer of two of its pension plans for active employees to the state-operated plan, essentially requiring it to pay the full annual required contribution (ARC).
HEAVY DEPENDENCE ON STATE AID: The city budget relies heavily on state funding for education and payments in lieu of taxes for tax-exempt properties. State funding levels have been volatile in recent years but the outlook is positive for this coming fiscal year.
ABOVE-AVERAGE DEBT LEVELS: Overall debt ratios are above average, and carrying costs, which include debt service, pensions and OPEB, are moderate but expected to increase gradually over time.
WEAK SOCIOECONOMIC INDICATORS: Unemployment rates remain high and wealth levels are below average. City population has been increasing in the past decade, reversing a declining trend.
FINANCIAL PERFORMANCE: The city's ability to continue to manage its growing employee costs and maintain at least existing or better reserve levels (recognizing the fairly thin financial margin that these provide) could result in a revision in the Rating Outlook to Stable. Actions contrary to this could result in a downgrade.
Bridgeport is Connecticut's largest city and has a 2013 population of 147,216 which notably is up 5.5% since 2000. It is located 63 miles north of New York City and borders the towns of Fairfield, Trumbull and Stratford, CT.
NEW DEVELOPMENT EXPECTED TO BOOST ECONOMY AND EMPLOYMENT
The city's new waterfront development project known as Steelpointe Harbor is expected to generate substantial economic activity as well as new jobs. This 50-acre mixed-use development along Bridgeport Harbor is planned to be anchored by a Bass Pro shop which has reportedly executed its lease for the site and received partial state assistance for construction of the store with completion expected late 2015. Fitch expects the several small new and redevelopment projects that are planned or in the works will help to improve the city economy and tax base over the next few years.
FINANCIAL RESULTS SHOW SMALL SURPLUSES; RESERVE LEVELS REMAIN LOW
For fiscal 2013 the city reported a small general fund operating surplus of $203,568 resulting in an unrestricted fund balance of $12.6 million or a low 2.1% of spending. Tax collections came in slightly over budget and an additional $2.8 million in state aid was received compared to budget. These funds helped the city to cover the additional expenses incurred during the various storms that the area experienced. Fitch notes that the city continued to fund less than 100% of its pension ARC in fiscal 2013 and had it done so, results may have been negative.
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