OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following general obligation (GO) bonds of the Town of Easton, Maryland (the town);

--$10.2 million public facilities and refunding bonds of 2015.

The bonds are expected to be sold via competitive sale on Oct. 13th. Proceeds will be used to finance various town capital projects and refund the series 2008 bonds for debt service savings.

In addition, Fitch affirms the following ratings:

--Approximately $8.9 million outstanding unlimited tax general obligation (ULTGO) bonds at 'AA'.

The Rating Outlook is Stable.

SECURITY

The full faith, credit, and unlimited taxing power of the town of Easton are irrevocably pledged to the payment of debt service.

KEY RATING DRIVERS

STRONG RESERVES MITIGATE CHARTER RESTRICTION: The town maintains a strong liquidity position and reserve levels supported by structural balance. Ample reserves mitigate concerns over a charter restriction on property tax revenue for operations; the rate levied for debt repayment is unlimited.

ADEQUATE ECONOMIC BASE: Employment opportunities are sufficiently diverse but are generally focused in healthcare and retail. Historically, the town's economy has been weaker than the county's, with wealth metrics trending below the county's.

MODERATELY LOW DEBT; MODERATE CARRYING COSTS: Overall debt, including overlapping debt of the county, is moderately low. Total carrying costs are moderate, and likely to stay at current levels.

RATING SENSITIVITIES

STRUCTURAL BALANCE: A shift in financial performance, especially given the charter-tax limitation, could pressure the rating. The Stable Outlook reflects Fitch's expectation that such changes are unlikely.

CREDIT PROFILE

The town is located in Talbot County (ULTGO bonds rated 'AAA' with a Stable Outlook by Fitch), approximately 70 miles east of Washington, DC, in Maryland's Eastern Shore region. The town's population totaled 16,675 in 2014 and the economy is stable with most employment activity in the healthcare and retail sectors.

TALBOT COUNTY CENTER

Easton is the urban center of a mostly rural county. Over 40% of the county's population resides in the town, which provides the majority of services for county residents.

Healthcare is the town's largest employment sector. Shore Regional Health, a member of the University of Maryland Medical System, is the town's largest employer with 1,641 employees. The hospital is in the planning stages for a $250 million medical complex to service the entire upper shore region. Fitch believes that the long-term prospects for the facility are positive, as University of Maryland Shore Medical Center at Easton serves an important regional need. The town's retail base continues to expand. Recent new businesses include Dicks Sporting Goods, Tractor Supply, Chipotle and Olive Garden. Currently under construction are BJ's Wholesale, Harris Teeter and a Fairfield Inn and Suites.

Unemployment in the county (the closest proxy available) decreased to 5.2% in June 2015 from 5.6% a year prior. Median household income for the town is 73.4% of the state and on par with the nation.

BALANCED FINANCIAL PERFORMANCE

Fitch views positively the town's strong financial performance supported by an ongoing commitment to conservative financial management policies including monthly reporting to the town council. The town's strong fund balance policy requires a minimum of two months and a maximum of four months of the following fiscal year's budgeted total general fund expenditures plus transfers, which the town continues to meet.
Fiscal 2014 resulted in a modest $336,470 (1.8% of spending) deficit after $2.5 million in transfers out to the capital projects fund. The unrestricted general fund balance stood at $5.6 million or an ample 30.8% of general fund spending.

The 2015 budget was balanced with no use of fund balance. The budget included an 8% decrease in revenues over the fiscal 2014 budget, reflecting abolishment of the town's personal property tax for manufacturers offset by a recovering housing market. Unaudited fiscal 2015 results show a $932,458 operating surplus (5.4% of spending) after a $2.1 million transfer to the capital projects fund. Total general fund balance is expected to increase to $7.7 million from $6.7 million.

The fiscal 2016 budget projects a 4.7% decline in revenue from fiscal 2015 and is balanced with no revenue enhancement or fund balance appropriation. Fitch believes the town will continue to maintain ample reserve levels given its history of conservative budgeting practices.

STRONG RESERVES MITIGATE CHARTER LIMITATION

The town's unrestricted fund balance provides ample cushion to offset revenue inflexibility from the town's property tax cap. Property tax revenues account for 63% of general fund income. The town charter limits the operational property tax rate to $0.55 per $100 of assessed valuation (AV); the rate levied for repayment of debt service is unlimited. While the town has left the operational tax rate unchanged for the past few years at $0.52, the current rate's proximity to the charter limit constrains potential revenue-raising capacity should AV decline in future fiscal periods.

The state reassesses one-third of its property each year in accordance with Maryland law. Any increases in assessed value are phased in over the three year basis while any decreases in value are fully implemented in the next tax year. During the most recent reassessment in fiscal 2015 real property values declined by a notable 8%. Real property values for fiscal 2016 show modest growth of 1.5%. However, according to the most recent Zillow report home values have declined over the last year.

AFFORDABLE DEBT PROFILE

The town's overall debt burden is low at $1,049 per capita and 0.8% of TAV. Debt ratios increase to a more moderate $3,516 per capita and 2.8% of market value when debt of Talbot County is included. The burden is expected to remain low given the absence of additional debt plans from the town and county.
Pension and other-post employment benefits (OPEB) represent a manageable burden. The town fully funds the actuarial required contribution for its defined benefit pension plan covering sworn employees. The town maintains a defined contribution pension plan for all other employees. The town's pension plans consume approximately 6.2% of governmental fund spending, which excludes funding of the defined contribution plan. OPEB benefits are funded on a pay-as-you-go basis and this amount equaled 178% of the OPEB ARC in fiscal 2014. Total carrying costs, including debt service and costs related to post-retirement benefits, were moderate at 20.7% of total governmental spending in fiscal 2014.