OREANDA-NEWS. Fitch Ratings has assigned the following ratings to the Town of Trumbull, CT (the town) general obligation (GO) bonds and bond anticipation notes (BANs):

--$7.54 million GO bonds, issue of 2016 'AA+';

--$9.79 million GO BANs, due Aug. 30, 2017 'F1+'.

The GO bonds will permanently finance maturing BANs originally issued to finance various town projects and to fund a new project. The BAN proceeds will be used to finance various school and public improvement projects.

In addition, Fitch has affirmed the following ratings for the town:

--Long-Term Issuer Default Rating (IDR) at 'AA+';

--$125.65 million GO bonds at 'AA+';

--$9.52 million GO BANs due Sept. 1, 2016 at 'F1+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds and BANs are general obligations of the town backed by its full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

The 'AA+' IDR and GO rating reflects the continued increase in the funding levels of the pension plans and improvement to full funding of the actuarially determined contribution (ADC). Actions taken by the town including closing the defined benefit portion of the plans to new employees limit the potential for growth in the net liability. In addition, the rating reflects town's exceptional financial resilience stemming from strong revenue growth and solid expenditure flexibility.

The 'F1+' rating on the BANs corresponds to the town's Long-Term 'AA+' IDR rating and demonstrated access to capital markets.

Economic Resource Base

Trumbull spans an area of 23.5 miles in Fairfield County situated 20-30 miles from both Stamford and New Haven and roughly 60 miles from New York City. The town is a primarily residential community and continues to grow at a moderate pace with a 2015 population of 36,628.

Revenue Framework: 'aaa' factor assessment

The bulk of operating revenues are derived from property taxes levied on a predominantly residential and very affluent tax base. There is no limit to the rate or levy.

Expenditure Framework: 'aa' factor assessment

Two-thirds of the general fund budget pays for schools. Fixed carrying costs are relatively low providing solid expenditure flexibility; pension contributions for teachers are fully covered by the state. Management maintains moderate control over wages and benefits in labor contracts due to an advantageous conflict resolution process.

Long-Term Liability Burden: 'aaa' factor assessment

The combined burden of debt and net pension liabilities is low compared to personal income and should remain stable based on the town's rapid debt amortization rate and improvements in managing the pension plans. The town's two pension plans are now closed to new entrants and the town pays 100% of the actuarial contribution; progress that Fitch anticipates will begin reducing the net liability over time.

Operating Performance: 'aa' factor assessment

Generally conservative budgeting and steady, moderate tax rate increases have allowed revenues to keep pace with spending growth. Reserves have been steadily maintained at or near the town's formal fund balance policy at 10% of spending. The town has made important pension progress by budgeting for full actuarially-calculated contributions and implementing benefit structure changes to curtail the growth of this liability.

RATING SENSITIVITIES

Financial Flexibility: The ratings are sensitive to shifts in fundamental credit characteristics, including the maintenance of healthy reserves and sustaining the improved contribution practices of the town's retiree benefit liabilities.

CREDIT PROFILE

The town benefits from a strong tax base registering an estimated $6.5 billion of market value or $176,000 per capita for the fiscal 2016 levy. Residential real property accounts for 69% of the tax base and the $358,000 median home price as reported by Zillow is considerably higher than the state norm. Home prices have exhibited only a modest improvement from the recessionary low. The tax base is revalued every five years and the upcoming fiscal 2018 revaluation is expected to capture measured commercial and residential tax base appreciation. The property tax base is somewhat concentrated in the largest tax payer, the Trumbull Shopping Center, which is a moderate 4.5% of the taxable assessed value (TAV).

The town's largely residential character is complemented by its proximity to larger employment centers throughout Fairfield County including Fairfield, Bridgeport, Stamford, and New Haven. Town residents exhibit a relatively high degree of educational attainment with over half holding a bachelor's degree or higher (138% of the state average). Per capita personal incomes, corresponding to the education levels and strong regional employment, are high at about $86,000. The town's unemployment rate of 4.7% reported at May 2016 has consistently registered below that of the county, state, and nation. Unemployment continues to improve based on growing employment in the town and region.

Revenue Framework

The town's general fund is 85% funded with property tax revenues. The grand list is revalued every five years with minimal change in between for new construction and tax appeals. The upcoming revaluation effective for fiscal 2018 should capture solid post-recession tax base growth.

General fund revenues have increased ahead of inflation and along the lines of US GDP over the last decade. Fitch expects the trend to continue based on the town's tax base growth and positive building permit numbers.

Municipalities in Connecticut possess an independent legal ability to raise property taxes by state constitution.

The town's charter allows residents to petition for referendum a 3.5% cap to an adopted budget that includes an increase above this amount. Five percent of voters must sign a petition to put the referendum on the ballot. The ballot allows voters to reject the approved budget and replace it with the previous budget plus 3.5%; the ballot requires two-thirds approval to pass. While Fitch expects this policy could potentially limit future spending growth it does not materially inhibit the legal ability to raise revenues during a downturn.

Expenditure Framework

School spending is two-thirds of the town's general fund expenditure. The board of education sets the budget and sends it to the town council for approval, which may then adjust the headcount, among other spending items. The school budget is primarily funded by the town's property tax with a lesser amount coming from state grants. The state directly pays actuarial contributions to the teacher's pension.

Expense growth is expected by Fitch to be moderate and generally in line with to slightly above revenues without policy action.

Fixed carrying costs for debt service, pension and OPEB are a manageable 11% of spending. Management has the ability to reduce expenses tied to its services as non-public safety staff at any time if necessary. Union contracts are subject to arbitration but a decision may be rejected by a two-thirds vote by the city's legislative body. Arbitration decisions are required to take into consideration the financial capability of the employer. The town made minor cuts to full-time positions over the previous recession by combining positions and eliminating non-filled positions and indicated that additional expenditure flexibility above this remains in order to address a potential future downturn.

Long-Term Liability Burden

The burden of debt and unfunded pension liabilities is low at 7% of personal income. Over half of the burden is due to the town's moderate level of outstanding debt, net of school and sewer construction grant receivables. The town repays a very high 74% of its outstanding principal within 10 years and the descending debt service structure also allows the town good flexibility to address future capital needs. The fiscal 2017 to 2021 capital program totals $115 million, with about $8 million in new issuance per year and the remainder of non-debt funding coming largely from grants; the town provides minimal paygo funding for the capital plan.

The town has two single-employer defined benefit pension plans; one for town employees and one for the police. The plans' assets are well below liabilities as of the most recent valuation for July 1, 2014. Ratios of assets to liabilities are below average given historically lower-than-required contributions. For the town employees' plan, assets cover only 35% of liabilities, measured at a 5.6% discount rate, and for the police plan, assets cover 72% of liabilities at a 7% discount rate. Despite past contribution challenges the overall NPL, at $87.3 million or just 2.8% of personal income, may stabilize due to the plans being closed to new entrants and the town council's new ordinance that requires making full actuarial contributions. The ordinance cannot be overridden without two-thirds vote of the council. Fiscal 2016 was the first time the town fully contributed to both plans. All new hires are now enrolled into a defined contribution plan.