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HomeMy Public PortalAboutBond Rating 2018Summary: Brewster, Massachusetts; General Obligation Primary Credit Analyst: Steven E Waldeck, Boston (1) 617-530-8128; steven.waldeck@spglobal.com Secondary Contact: Christina Marin, Boston 617-530-8312; christina.marin@spglobal.com Table Of Contents Rationale Outlook Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 1 Summary: Brewster, Massachusetts; General Obligation Credit Profile US$6.87 mil GO mun purp loan bnds ser 2018 dtd 03/15/2018 due 03/15/2038 Long Term Rating AAA/Stable New Rationale S&P Global Ratings assigned its AAA' rating and stable outlook to Brewster, Mass.' series 2018 general obligation (GO) municipal-purpose loan bonds and affirmed its 'AAA' rating, with a stable outlook, on the town's existing GO debt. Under our criteria, titled "Ratings Above The Sovereign: Corporate And Government Ratings—Methodology And Assumptions," published Nov. 19, 2013, on RatingsDirect, we rate Brewster higher than the sovereign because we believe the town can maintain better credit characteristics than the nation in a stress scenario based on its predominantly, locally derived revenue base and our view that pledged revenue supporting bond debt service is at limited risk of negative sovereign intervention. In 2016, local property taxes generated 79% of revenue, which demonstrated a lack of dependence on central government revenue. Officials plan to use series 2018 bond proceeds to fund firehouse construction and road repairs. The town's full-faith-and-credit pledge, subject to Proposition 2 1/2 limits, secures the bonds. We rate the limited-tax GO debt on par with our view of Brewster's general creditworthiness, reflected in the rating on the unlimited-tax GO bonds. We understand the town's voters have chosen to exclude $6.5 million of bonds from the primary levy limit of Proposition 2 1/2. The rating reflects our opinion of the town's: ·Very strong economy, with access to a broad and diverse metropolitan statistical area (MSA); ·Strong management, with good financial policies and practices under our Financial Management Assessment (FMA) methodology; ·Strong budgetary performance, with balanced operating results in the general fund and a slight operating surplus at the total-governmental-fund level in fiscal 2016; ·Very strong budgetary flexibility, with an available fund balance in fiscal 2016 of 17% of operating expenditures; ·Very strong liquidity, with total government available cash at 34.6% of total-governmental-fund expenditures and 11.8x governmental debt service, and access to external liquidity we consider strong; ·Very strong debt-and-contingent-liability position, with debt service carrying charges at 2.9% of expenditures and net direct debt that is 56.1% of total-governmental-fund revenue, as well as low overall net debt at less than 3% of market value; and ·Strong institutional framework score. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 2 Very strong economy We consider Brewster's economy very strong. The town, with an estimated population of 9,854, is in Barnstable County in the Barnstable Town MSA, which we consider broad and diverse. The town has a projected per capita effective buying income of 134% of the national level and per capita market value of $387,652. Overall, market value has grown by 5.5% over the past year to $3.8 billion in fiscal 2018. The county unemployment rate was 4.7% in 2016. Located on Cape Cod, approximately 90 miles from Boston, the town is primarily residential. Seasonal second homes account for a substantial portion of Brewster's housing stock. The town's population swells to 35,000 in the summer with vacationers and retirees taking advantage of area beaches and outdoor recreational opportunities. Factoring the seasonal population into our assessment of economic indicators, market value remains strong and in excess of $100,000 per capita. Strong management We view the town's management as strong, with good financial policies and practices under our FMA methodology, indicating financial practices exist in most areas but that governance officials might not formalize or monitor all of them on a regular basis. Policy highlights include management's focus on financial and capital planning, demonstrated by a five-year capital improvement plan it votes on and reprioritizes annually. Brewster's five-year budget projections use assumptions based on historical trend analysis, allowing for, what we regard as, conservative budget assumptions each cycle. In addition, the town's finance department regularly monitors and reports on budget and pension-investment performance to the town selectboard. According to policy, management reports on investments and cash holdings quarterly. Brewster does not currently have any formal debt-management policy, but it maintains level debt-service funding when planning for additional debt. Management follows a reserve policy of maintaining a minimum stabilization-fund balance of $2 million, which it has adhered to historically. Strong budgetary performance Brewster's budgetary performance is strong, in our opinion. The town had balanced operating results in the general fund of negative 0.1% of expenditures and slight surplus results across all governmental funds of 1.1% of expenditures in fiscal 2016. In our analysis of budgetary performance, we net out approximately $2.6 million of expenditures paid by bonds and notes. In measuring total-governmental-funds' performance, we account for recurring transfers into the general fund from enterprise funds. Management attributes positive operating results in fiscal 2016 to conservative expenditure estimates and revenue that outperformed the budget. Officials expect another budget surplus in fiscal 2017 because expenditures have been within budgeted figures and revenue has remained on target. The fiscal 2018 budget totals $44.7 million, up by 8% annually. Based on consistent operating performance over the past several fiscal years, we expect the town to achieve balanced operations in fiscal 2018. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 3 Summary: Brewster, Massachusetts; General Obligation With Brewster's property tax levy accounting for more than 75% of total revenue, it benefits from property tax base diversity and strength. In our opinion, tax collections have historically remained strong despite the large number of second-home properties; current collections have averaged 99% over the past five years. Including delinquent-tax collections for the previous year, the town has exceeded 100% of the tax levy. Very strong budgetary flexibility Brewster's budgetary flexibility is very strong, in our view, with an available fund balance in fiscal 2016 of 17% of operating expenditures, or $6.8 million. The town's fund-balance policy is to maintain a minimum $600,000 of annual surplus in reserves and $2 million in the stabilization fund. The stabilization fund's current balance is $2.06 million, which is an unassigned fund balance. Currently, there are no plans to use stabilization reserves for operational or capital spending. Any stabilization-fund appropriation would require a town meeting vote. Based on the current budgetary environment, we expect the town will likely maintain, what we consider, very high available fund balance. We do not expect our evaluation of budgetary flexibility to change over the next few fiscal years because the town has kept reserves consistently above 15% of operating expenditures over the past three fiscal years. Very strong liquidity In our opinion, Brewster's liquidity is very strong, with total government available cash at 34.6% of total-governmental-fund expenditures and 11.8x governmental debt service in fiscal 2016. In our view, the town has strong access to external liquidity if necessary. We do not currently expect any deterioration in cash; therefore, we expect liquidity will likely remain very strong. Brewster is a frequent issuer of GO debt, supporting its strong access to external liquidity, if needed. Management confirmed it does not currently have any contingent-liquidity risk from financial instruments with payment provisions that change upon the occurrence of certain events. In our opinion, Brewster's investment portfolio is not aggressive. Very strong debt-and-contingent-liability profile In our view, Brewster's debt-and-contingent-liability profile is very strong. Total-governmental-fund debt service is 2.9% of total-governmental-fund expenditures, and net direct debt is 56.1% of total-governmental-fund revenue. Overall net debt is low at 0.7% of market value, which is, in our view, a positive credit factor. Following this issue, Brewster would have $31 million of total direct debt outstanding, about $7.7 million of which is self-supporting debt from the enterprise accounts. The town will maintain roughly $5 million of authorized, but unissued, debt; we do not believe this will likely have a material effect on the debt profile. Brewster's combined required pension and actual other-postemployment-benefit (OPEB) contribution totaled 6.1% of total-governmental-fund expenditures in fiscal 2016. Of that amount, 4.6% represented required contributions to pension obligations and 1.5% represented OPEB payments. The town made its full annual required pension contribution in fiscal 2016. Brewster contributes to the Barnstable County retirement system, a cost-sharing, multiemployer, defined-benefit WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 4 Summary: Brewster, Massachusetts; General Obligation pension plan. Using updated reporting standards in accordance with Governmental Accounting Standards Board Statement Nos. 67 and 68, the town's proportionate share of the net pension liability was about $22.7 million with 58% funded at Dec. 31, 2015, based on an assumed rate of return of 7.75%. Due to the funded ratio, we believe contributions will likely continue to rise over the next few fiscal years. While the town is currently managing these costs, we believe it has a limited ability to control future pension-liability growth. Brewster also provides OPEB to retirees. At June 30, 2014, the most recent actuarial valuation, Brewster reported a $17 million OPEB liability. The town has traditionally funded OPEB through pay-as-you-go financing: It paid $1.7 million, or 1.5% of expenditures, which was 38% of the annual required contribution, in fiscal 2016. The town established an OPEB trust to mitigate the liability, which has a current balance of $1.7 million. Strong institutional framework The institutional framework score for Massachusetts municipalities is strong. Outlook The stable outlook reflects S&P Global Ratings' opinion that Brewster's strong management will likely support the rating, as will its very strong economy due to high wealth and income, which S&P Global Ratings believes will likely translate to the town maintaining strong budgetary performance and reserves. Due to these strengths and the expectation of the maintenance of stable finances and healthy reserves, we do not expect to change the rating over our two-year outlook period. Over time, however, if debt-and-contingent liabilities worsen due to escalating pension costs and if they begin to pressure budgetary performance or reserves, we could lower the rating. Related Research ·S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 ·Incorporating GASB 67 And 68: Evaluating Pension/OPEB Obligations Under Standard & Poor's U.S. Local Government GO Criteria, Sept. 2, 2015 ·2017 Update Of Institutional Framework For U.S. Local Governments Ratings Detail (As Of February 20, 2018) Brewster GO Unenhanced Rating AAA(SPUR)/Stable Affirmed Long Term Rating AAA/Stable Affirmed Many issues are enhanced by bond insurance. Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 5 Summary: Brewster, Massachusetts; General Obligation available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 6 Summary: Brewster, Massachusetts; General Obligation WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 20, 2018 7 STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. 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