wilton (town of ) ct · moody's investors service u.s. public finance key indicators exhibit 1...

U.S. PUBLIC FINANCE

CREDIT OPINION11 April 2017

New Issue

Contacts

Heather Guss [email protected]

Robert Azrin 617-535-7692VP-Senior [email protected]

Wilton (Town of) CTNew Issue - Moody’s Assigns Aaa to Wilton, CT’s GO Bonds;Outlook Stable

Summary Rating RationaleMoody's Investors Service has assigned a Aaa rating to the Town of Wilton, CT’s $8.7 millionGeneral Obligation Bonds, Issue of 2017 (Bank Qualified). Moody’s maintains the Aaa ratingon $74 million of outstanding general obligation debt. The outlook is stable.

The Aaa rating reflects the town’s sizeable and affluent tax base, stable and sound financialposition, manageable debt burden, and prudent funding of pension and OPEB liabilities.

Credit Strengths

» Stable and healthy reserve position bolstered by formal fund balance policy

» Affluent residential tax base

» Prudent funding of pension and OPEB liabilities

Credit Challenges

» Likely loss of education aid due to the state’s budget gap

» Potential shifting of some teachers’ pension costs to the town from the state

Rating OutlookThe stable outlook reflects the town’s trend of stable financial operations with healthyreserves that will continue given strong management, conservative budgeting, and adherenceto formal policies.

Factors that Could Lead to a Downgrade

» Trend of operating deficits resulting in a material decline in reserve

» Significant declines in the tax base or deterioration of the demographic profile

» Material growth in debt burden

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MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

Key Indicators

Exhibit 1

Wilton (Town of) CT 2012 2013 2014 2015 2016

Economy/Tax Base

Total Full Value ($000) $ 7,259,436 $ 7,304,210 $ 6,054,409 $ 6,802,946 $ 6,535,482

Full Value Per Capita $ 398,848 $ 397,985 $ 326,930 $ 364,906 $ 349,230

Median Family Income (% of US Median) 307.6% 310.8% 309.0% 307.6% 307.6%

Finances

Operating Revenue ($000) $ 120,282 $ 121,388 $ 126,114 $ 126,763 $ 130,647

Fund Balance as a % of Revenues 17.8% 17.2% 17.8% 18.1% 18.0%

Cash Balance as a % of Revenues 21.6% 19.4% 24.0% 23.2% 24.3%

Debt/Pensions

Net Direct Debt ($000) $ 60,002 $ 61,364 $ 59,241 $ 74,506 $ 83,700

Net Direct Debt / Operating Revenues (x) 0.5x 0.5x 0.5x 0.6x 0.6x

Net Direct Debt / Full Value (%) 0.8% 0.8% 1.0% 1.1% 1.3%

Moody's - adjusted Net Pension Liability (3-yr average) to Revenues (x) 0.3x 0.3x 0.3x 0.4x 0.4x

Moody's - adjusted Net Pension Liability (3-yr average) to Full Value (%) 0.4% 0.6% 0.7% 0.7% 0.8%

As of June 30 fiscal year-end. The fund and cash balance include the General Fund and Debt Service Fund.Source: Moody's Investors Service

Detailed Rating ConsiderationsEconomy and Tax Base: Affluent Residential Tax Base in Fairfield CountyThe sizeable $6.5 billion Equalized Net Grand List (ENGL) will remain healthy given its favorable location and strong property values.Located in Fairfield County, Wilton is 55 miles from New York City (Aa2 stable) and on the Danbury Line of the Metro-North Railroad.The town is primarily residential and approximately 16% is undeveloped. The five year (fiscal 2011-2016) compound annual decline inENGL is a modest 2%. The next revaluation will be complete for the fiscal 2019 tax rolls. Building permit activity was strong in fiscal2016 (value of $65 million compared to an average of $34 million the previous five years) due to commercial projects, notably a 30-unit apartment complex. The town is beginning to experience new development from medical related businesses, which will drivegrand list growth over the near term. In addition, the town recently approved zoning changes to allow for age-restricted residentialdevelopments, which should also drive future growth.

The town is affluent as evidenced by a median family income representing 228% and 308% of the state and nation, respectively.Housing values are very strong; equalized value per capita is a robust $349,230 and median home values are 467% of the nationalmedian. The town’s unemployment rate (4.1% January 2017) remains below the state (5.4%) and nation (5.1%).

Financial Operations and Reserves: Carefully Managed Financial Position in Accordance with Formal PolicyWilton’s financial position will continue to remain stable given sound reserve levels and adherence to a formal policy. In addition, thetown is not heavily reliant on state aid and a loss in education aid resulting from the state’s budget gap is not expected to materiallypressure the town’s financial position. Reserve levels have been stable for the past six years, and the available General Fund balance(unassigned, assigned, and committed) has averaged a sound 17.2% of revenues since 2011.

Audited fiscal 2016 results reflect a $1 million decline in General Fund balance, which is slightly better than projections made duringour June 2016 review. The town had a budgetary surplus - driven by city-owned property sales, strong tax collections, savings fromopen positions, and unused contingency - but the positive variances weren’t enough to completely replenish the $4.8 million usedto balance the 2016 budget. Despite the decline, available fund balance remains sound at $21.7 million or 16.6% of revenues. Of this

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 11 April 2017 Wilton (Town of) CT: New Issue - Moody’s Assigns Aaa to Wilton, CT’s GO Bonds; Outlook Stable


amount, $15.9 million (12.2%) is unassigned and the town remains in compliance with its policy to keep this balance at a minimum of10%.

The fiscal 2017 budget increased 1% and was balanced with a 1.9% mill rate increase and $4 million of fund balance. The reserveappropriation is in line with the policy of appropriating unassigned fund balance in excess of 10% to offset annual tax increases.Management reports stable operations year to date, and unassigned fund balance is projected to be level from fiscal 2016 figures.

Positively, the town is not heavily exposed to the state’s fiscal challenges given that less than 10% of its annual revenues come fromthe state. Property taxes are the largest revenue source at 88%, and current year collections remain very strong at over 99%. Thegovernor’s proposed budget, if adopted, would result in $1.2 million net loss in state aid (0.9% of the town’s fiscal 2016 total revenue).The town has prudently accounted for this loss in its preliminary fiscal 2018 budget, which is balanced with a 1.58% mill rate increaseand a $4 million appropriation of fund balance, the same amount as fiscal 2017.

Another aspect of the governor’s proposed budget is to shift one third of teachers’ pension costs from the state to local governments.Although we expect this proposal will be modified as it moves through the legislative process, if it was adopted as proposed, Wilton’sburden would be $4 million. The town has a realistic plan to make up this amount, if needed, without drawing on fund balance.

LIQUIDITY

Wilton’s cash position remains healthy. General Fund cash and investments at fiscal 2016 year-end totaled $30.7 million or 23.5% ofrevenues.

Debt and Pensions: Debt Burden Will Remain Manageable; Prudent Funding of Pension and OPEB LiabilitiesThe debt burden, currently an average 1.3% of ENGL, will increase modestly over the near term due to future borrowing plans but willremain manageable given satisfactory principal amortization. The Capital Improvement Plan totals $34.7 million through fiscal 2022and will be financed entirely with debt. In addition to projects listed in the CIP, the town will continue financing its share of renovationsat the Miller-Driscoll Elementary School with debt. Management reports that the project is ahead of schedule and below budget, andwill cost the town $36 million after accounting for $6 million in expected state grants. The town has borrowed $29.2 million to date(including the current issue) and will borrow the remaining $6 million next year.

DEBT STRUCTURE

All debt is fixed rate and the ten year principal amortization is satisfactory at 70%. Debt service comprised 8.2% of fiscal 2016expenditures.

DEBT-RELATED DERIVATIVES

Wilton is not party to any interest rate swaps or other derivative agreements.

PENSIONS AND OPEB

Wilton is responsible for the administration of a single-employer defined benefit pension plan for substantially all employees, otherthan teachers and certain administrators who are covered under the state run plan. The town maintains a policy of funding in excessof the actuarially determined contribution (ADC) depending on the plan’s funded ratio. Due to the town’s aggressive funding of thisliability, the plan’s funded ratio has increased annually and was 96.5% as of the June 30, 2015 valuation date. The town contributed$3.1 million in fiscal 2016, which was 110% of the ADC. In fiscal 2017, the town contributed 105% of the ADC.

The fiscal 2016 three year average Moody's adjusted net pension liability, under Moody's methodology for adjusting reported pensiondata, is $54.7 million, or a below-average and manageable 0.4 times revenues and 0.8% of ENGL. Moody's uses the adjusted netpension liability to improve comparability of reported pension liabilities. The adjustments are not intended to replace the town’sreported liability information, but to improve comparability with other rated entities.

The town contributes to its OPEB liability on a partial pre-funded basis. The town has historically contributed 100% of the annual cost,far more than most local governments across the country. The fiscal 2016 contribution was $570,912 or 0.4% of expenditures. Thebalance of the trust is currently $6.9 million, and the unfunded liability is $3.3 million as of the most recent valuation report datedJuly 2014. The plan’s funded ratio is 57.4%, which represents a substantial improvement from 7.2% in 2008. Starting in fiscal 2018, thetown will begin funding its OPEB liability similar to how it funds the pension plan – contributing an amount in excess of the annual



cost, depending on the plan’s funded ratio. In fiscal 2018, the town will fund 120% of the annual cost. Management’s prudent fundingpolicies for pension and OPEB represent a strong commitment to maintaining superior funding levels for both liabilities.

Total fixed costs for fiscal 2016, including debt service, required pension contributions and retiree healthcare payments, represented$14.6 million, or a manageable 11% of expenditures.

Management and GovernanceThe management team continues to demonstrate strong and conservative fiscal management including compliance with formalfinancial policies, adopting a five year capital plan, and aggressive funding of long-term liabilities.

Connecticut cities and towns have an Institutional Framework score of Aa, which is high compared to the nation. InstitutionalFramework scores measure a sector's legal ability to increase revenues and decrease expenditures. Connecticut cities’ and towns’ majorrevenue source, property taxes, is not subject to any caps. Unpredictable revenue fluctuations tend to be minor, or under 5% annually.Across the sector, fixed and mandated costs are generally greater than 25% of expenditures. Connecticut has public sector unions andadditional constraints, which limit the ability to cut expenditures. Unpredictable expenditure fluctuations tend to be minor, under 5%annually.

Legal SecurityThe bonds are secured by a general obligation unlimited tax pledge.

Use of ProceedsThe majority of bond proceeds ($6.2 million) will finance continued renovations to the Miller-Driscoll Elementary School. Theremaining $2.5 million will finance road improvements and a new turf field.

Obligor ProfileWilton has a population of 18,600 and is located in Connecticut’s Fairfield County, approximately 55 miles northeast of New York City(Aa2 stable).

MethodologyThe principal methodology used in this rating was US Local Government General Obligation Debt published in December 2016. Pleasesee the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Ratings

Exhibit 2

Wilton (Town of) CTIssue RatingGeneral Obligation Bonds, Issue of 2017 BankQualified

Aaa

Rating Type Underlying LTSale Amount $8,650,000Expected Sale Date 04/26/2017Rating Description General Obligation

Source: Moody's Investors Service



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