Monday, March 17, 2008

Middletown Finances- Good News

MOODY'S ASSIGNS Aa2 TO TOWN OF MIDDLETOWN'S (RI) $6M G.O. BONDS

TOTAL OF $21.5 MILLION IN G.O. DEBT OUTSTANDING

For all the local economic wonks out there:



The town is selling 6 mil in general obligation bonds on 3/13. Moody's Investor Service assigned a rating of Aa2 (the best) & affirmed the town's long-term rating affecting $15.5 mil in previously issued parity debt. The bonds are secured by a property tax pledge. The new bonds will be used to fund a police station.

This rating relects the town's financial stablity and strong reserve levels with "a wealthy, stable tax base and modest debt burden."

The town had a planned drawdown of appx. $1 million in 2003 (used to purchase two parcels of land and to finance a waterline extension project). It's had surpluses ranging from $260,000 to $1.4 million from 2004 to 2007. As a result, the General Fund balance grew to a strong $9.6 million at fiscal year-end 2007 (22.1% of revenues). The town also implemented a fund balance policy in 004, which stipulates maintaining between 8% and 16% of unreserved, undesignated fund balance, with excess fund balance available for capital project appropriations.


The town's fiscal 2008 budget includes a 5% increase (out of a max allowable increase of 5.25%) in the levy and an appropriation of $400,000 in fund balance, which includes $300,000 designated for school department use and $100,000 for the town. Favorably, $400,000 in fund balance appropriation is a reduction from appropriations of $766,000 and $521,000 in fiscal years 2006 and 2007, respectively.


Management reports that operations are currently on track with the budget and projects balanced operations. It also reports a collaborative relationship with the School Department, which ended the fiscal year 2007 with an operating surplus of $110,000.


Property taxes represent the largest revenue source at 59%, and are collected at a satisfactory rate of over 97% in each of the past four years. Moody's believes that Middletown's $3 billion tax base will continue to grow given ongoing residential and commercial development, albeit at a more moderate rate going forward given the general downturn in the housing market, reflected in the decline of town's median home sale price to $350,000 in 2007, down from its peak of $389,000 in 2005. The Newport Navy Base which bridges the Town of Middletown and Newport (G.O. rated Aa3) also provides stability to the tax base. Middletown is an economically diverse community that benefits from its location, which is located 30 miles southeast of Providence and adjacent to Newport and Portsmouth. The town serves as a bedroom community (75% of assessed valuation is residential) for individuals who work in employment centers throughout New England, and also has a strong retail component with several large shopping centers that continue to expand.

The town's assessed value has grown by 49% and 56% through two revaluations which became effective in fiscal years 2004 and 2007, respectively. Recent growth is attributed to the completion of a 97-room hotel and several new restaurants. Current development projects include a 36-unit condominium development and a gated retirement community. The Navy is also expected to release some surplus properties in the near term, which is expected to spur commercial and recreational development along the waterfront, further augmenting the town's tourism industry. Full value growth averaged an annual rate of 12% for the past five years (state's median growth rate is 11.9%), in part, reflecting market value appreciation. Additional stability is provided by the Naval Undersea Warfare Center (NUWC) located in town, which is part of the larger Naval Station Newport (NAVSTA) and Naval War College facility. The NUWC serves as the Navy's main facility for development, testing, engineering and support center for submarines, autonomous water systems and other undersea weapons systems.

The 2005 Base Realignment and Closure Commission (BRACC) maintained the facility as the nation's leading naval educational center and approximately 271 new employment positions are expected to be added in the near term. An estimated 3,000 long-term and short-term Navy personnel are believed to reside within the town, comprised of 1,400 permanent residents (instructors and support staff) and 1,600 temporary residents, primarily consisting of students receiving training. While tax-exempt, the Navy properties, including land, water-front educational and training facilities and office spaces, have an estimated value of $1.9 billion, of which $1.2 billion is located within the town. Wealth levels slightly exceed state medians, and the full value per capita is a strong $184,462, reflecting the presence of high-end waterfront properties, with reported market prices ranging between $4 million and $6 million. If the tax-exempt property were included in the full value per capita calculation, it would increase to an even more impressive $257,494, almost double the national median for Aa2 rated municipalities.

Moody's anticipates that Middletown's debt burden will remain manageable given an average current debt burden, continued tax base expansion and lack of significant borrowing plans. The overall debt burden is an average 1.2% of full valuation, and principal is retired at a slightly below average rate of 63.8% within 10 years. Potential future borrowing plans include $2 million for open space and $5 million for the construction of a fire station, which is expected to be issued in the medium term. Debt service represented a modest 3.3% of operating expenditures in fiscal 2007, and is expected to remain manageable given modest additional borrowing plans. The town has no variable rate debt or derivative agreements outstanding

KEY STATISTICS: 2000 Population: 17,334

2008 Full valuation: $3.0 billion

2008 Full value per capita: $184,462 1999 PCI (as % of RI and US): $25,857 (119.2% and 119.8%)

1999 MFI (as % of RI and US): $57,322 (108.6% and 114.5%)

Overall debt burden: 1.2%

Payout of principal (10 years): 63.8%

FY07 General Fund balance: $9.6 million (22.1% of revenues)

FY07 Unreserved, undesignated General Fund balance: $8.7 million (20.0% of revenues) Post-sale parity debt outstanding: $21.5 million

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