Springfield, Massachusetts General Obligation Non-School State Programs Note
Springfield, Massachusetts General Obligation Non-School State Programs Note
Springfield, Massachusetts General Obligation Non-School State Programs Note
Table Of Contents
Rationale Outlook Related Criteria And Research
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Summary:
Rationale
Standard & Poor's Ratings Services raised its issuer credit rating (ICR) on Springfield, Mass.' general obligation (GO) bonds to 'AA-' from 'A' based on our local GO criteria released Sept. 12, 2013. The outlook is stable. Standard & Poor's also assigned its 'SP-1+' short-term rating to Springfield's series 2014 GO bond anticipation notes (BANs). At the same time, Standard & Poor's affirmed its 'AA' long-term rating on Springfield's commonwealth-qualified GO qualified school construction bonds and affirmed its 'AA' underlying rating on the city's previously issued commonwealth-qualified debt. The outlook on all long-term ratings is stable. We base the 'AA' ratings on the bonds' eligibility under the commonwealth's Chapter 44A Qualified Bond Act. Massachusetts' emergency finance board has authorized the city to issue bonds or notes, including this issuance, as commonwealth-qualified bonds. The short-term note rating reflects our criteria for evaluating and rating BANs. In our view, Springfield maintains a very strong capacity to pay principal and interest when the notes come due. The city maintains what we view as a low market risk profile because it has strong legal authority to issue long-term debt to take out the notes and is a frequent issuer that regularly provides ongoing disclosure to market participants. The city's full faith and credit secures the notes and bonds. We understand that proceeds of the notes will be used to fund various capital improvement projects and equipment purchases. In our view, the ICR is based on our recently released local GO criteria and reflects our assessment of the following factors: Weak economy, with lower wealth and incomes, but that is considered broad and diverse; Strong budgetary flexibility, with available reserves above 8% of general fund expenditures;
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Summary: Springfield, Massachusetts; General Obligation; Non-School State Programs; Note Adequate budgetary performance due to costs related to rising pension and other postemployment benefits, as well as subsidy from general fund to trash enterprise fund; Very strong liquidity providing very strong cash levels to cover both debt service and expenditures; Very strong management conditions led by formalized financial policies and an experienced and capable management team; and Very strong debt and contingent liabilities position, mostly reflecting the city's rapid amortization and low debt burden, which is being offset by sizable pension and other postemployment benefits (OPEB) liabilities.
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consider very strong. Factored into our ratios is reimbursement from the state on school construction projects. Bolstering our view of the city's debt profile is that about 86% of principal debt will be retired over 10 years. In our opinion, the city's pension and OPEB liabilities remain a credit concern, but we acknowledge management has been proactive in managing them. Despite these efforts, we anticipate costs continuing to rise through the medium term given the size of the liabilities and funded ratios. Pension and OPEB costs have risen in the past few years to about 8.8% of total governmental fund expenditures in 2013. As of Jan. 1, 2012 (the latest actuarial valuation), the estimated unfunded actuarial accrued liability for the city's pension plan was $657 million, a 29% funded level. The funding schedule goes through 2037. Springfield's OPEB unfunded liability was about $1 billion as of June 2012, with an annual OPEB cost of $69 million, of which the city paid $31 million of actual costs, or 45%. The city participates in the Commonwealth of Massachusetts' Group Insurance Commission, and received some savings in its health insurance. The city has also set up an irrevocable OPEB trust to address the liability. Management is considering transferring about $5 million of its chapter 656 reserve to the trust. However, concrete plans in funding the trust have not been finalized.
Weak economy
Springfield serves a population estimate of 153,000 in Hampden County in western Massachusetts, about 90 miles west of Boston and 25 miles north of Hartford. In our view, while we consider the regional economy of Springfield broad and diverse, we note wealth and incomes are below average relative to the commonwealth and the nation. The city's projected per-capita effective buying income is 63% of the U.S. level. County unemployment averaged 8.5% in 2012, higher than both the state and national averages. Per-capita market value for the city is about $45,000 for fiscal 2014. Springfield's assessed value has declined by 15% since fiscal 2009 with a small increase in fiscal 2014 to $6.9 billion.
Outlook
The stable outlook on the program rating reflects our outlook on the commonwealth rating. The stable outlook on the ICR reflects Springfield's strong reserve levels and our expectation that management will maintain adequate financial performance and very strong management practices in the near term. Precluding a higher rating is the city's weak economy, as well as large pension and OPEB liabilities and costs. We could lower the rating if Springfield's budgetary performance or reserve decline significantly due to its continuous transfers to trash enterprise funds and rising long-term liabilities. With these reasons, we do not expect to change the rating within our two-year outlook horizon.
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Related Criteria
USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 Institutional Framework Overview: Massachusetts Local Governments, Sept. 12, 2013 USPF Criteria: Bond Anticipation Note Rating Methodology, Aug. 31, 2011 USPF Criteria: State Credit Enhancement Programs, Nov. 13, 2008
Related Research
S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 Ratings Detail (As Of January 28, 2014)
Springfield GO qual sch construction bnds (State Qualified) due 06/01/2027 Long Term Rating Springfield (Non-School State Prog) (AGM) Unenhanced Rating Springfield Non sch st prog Unenhanced Rating
Many issues are enhanced by bond insurance.
AA/Stable
Affirmed
AA(SPUR)/Stable
Affirmed
AA(SPUR)/Stable
Affirmed
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