Fitch Rates $39MM Hingham, MA's GO Bonds 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AAA' rating to the following Hingham, Massachusetts (the town) general obligation (GO) bonds:

--$39.1 million GO municipal purpose loan of 2015 bonds.

The proceeds of the bonds will be used to redeem bond anticipation notes originally issued to finance various projects in the town. The bonds are expected to sell via competitive sale on May 12, 2015.

In addition, Fitch affirms the following ratings:

--$3.9 million outstanding GO bonds series 2007 at 'AAA';

--$25.9 million GO municipal purpose loan bonds, series 2009A at 'AAA';

--$12.3 million GO refunding bonds, series 2010 at 'AAA';

--$1.3 million GO refunding bonds, series 2009B at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the town payable from ad valorem taxes which may be levied without limitation as to rate or amount, except as provided under Chapter 44, Section 20 (or Proposition 2 1/2). The 2009B bonds were voted to be exempt from the limit.

KEY RATING DRIVERS

AFFLUENT SOCIOECONOMIC PROFILE: Positive economic indicators include very high income levels, high market value per capita, and exceptionally low unemployment and poverty rates. The town is predominantly residential, benefiting from its proximity to the Boston labor market.

STRONG FINANCIAL PERFORMANCE: Hingham's sound operating results and solid reserve levels are the result of its strong financial management, prudent fiscal policies and conservative budgeting practices.

FAVORABLE DEBT PROFILE: The town's overall debt levels are moderate and amortization of direct debt is rapid.

MANAGEABLE EMPLOYEE RETIREMENT COSTS: Pension and other post-employment benefit (OPEB) expenses represent a manageable portion of the budget. The pension plan funded ratio is somewhat low but the town contributes the full actuarial required contribution (ARC) and the unfunded liability is modest.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the town's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

The town is located 20 miles southeast of Boston on the Atlantic coast. The 2013 population of 22,740 is up 14.4% since the 2000 census.

AFFLUENT BASE DRIVES ECONOMY

Hingham is an affluent residential community that benefits from its proximity to the Boston labor market. Wealth levels are double the state and national averages. Unemployment rates improved to a low 3.8% in February 2015 from 4.9% the prior year and remain below state (5.4%) and national (5.8%) levels. The town's market value, or equalized value, is roughly $6 billion or a very high $263,000 per capita.

Healthcare, retail and service-related industries employ the largest percentage of people, with Blue Cross & Blue Shield the largest employer (1,270 employees), followed by the town (947) and Linden Ponds (800), a retirement/senior living facility. Talbot's maintains headquarters in the town, with 460 employees.

STRONG FINANCIAL PERFORMANCE

The town's financial profile remains strong as operating surpluses (after transfers) in the last five fiscal years have bolstered general fund reserves resulting in strong liquidity. Fiscal 2014 ended with an operating surplus (after transfers) of $4 million, increasing unrestricted fund balance to $24.5 million, or a strong 25.9% of spending. Conservative budgeting of non-property tax revenues and lower than budgeted school expenditures contributed to the positive results. The town implemented a revised general fund balance policy in 2013 and currently meets the required unassigned balance level of 16%-20% of expenditures. Fitch views this level of reserves as a sound cushion against unexpended budgetary pressures.

The fiscal 2015 general fund budget totals $95.9 million, an increase of 6.2% over the prior year, due to increases in education, fire safety, and debt service spending. The budget includes the use of a modest $215,000 of general fund balance, or 0.2% of budgeted spending. Year-to-date estimates for fiscal 2015 indicate breakeven results despite higher than budgeted snow and ice removal costs.

The town's tax rate remains regionally competitive despite annually levying close to the maximum rate allowable pursuant to the state's Proposition 2 1/2 tax levy limitation. Proposition 2 1/2 is a two-prong test, whereby the tax levy cannot exceed 2.5% of the full and fair cash value and cannot exceed the prior year's maximum levy by more than 2.5% excluding new construction.

The town's taxable assessed valuation declined modestly through the recession, stabilizing in fiscal 2014 at $5.2 billion. Following a tax base reassessment in fiscal 2015 the tax base grew by a solid 6.8%.

LOW TO MODERATE DEBT RATIOS

Overall debt levels are moderate at $3,921 per capita and low at 1.5% of market value, reflecting the town's affluent tax base. Direct principal amortization is rapid with 66% of repaid within 10 years. The town's fiscal 2016-2020 capital improvement plan totals $25.6 million with a modest $5.3 million to be financed by debt proceeds.

The town is currently evaluating the purchase of a privately owned water system that services the town and several neighboring jurisdictions. Any purchase by the town would likely be funded with GO bonds resulting in a notable increase in total outstanding debt. Fitch would expect the bonds to be repaid through water rates, although it would ultimately be a contingent general fund liability.

MANAGEABLE EMPLOYEE RETIREMENT COSTS

Employee retirement benefit liabilities represent an affordable portion of governmental fund spending and do not pressure financial flexibility. The town manages a defined benefit plan for its employees, excluding teachers, who are covered under the state's plan. The ARC for fiscal 2014 totaled $4 million or a manageable 3% of total governmental fund spending. When adjusted by Fitch to reflect a more conservative 7% investment rate of return, the estimated funding level is somewhat low at 62.9%. However, consistent ARC funding and the affordable unfunded liability of $45 million (0.8% of market value) mitigate this concern.

Fitch views positively the town's efforts to manage its future OPEB liability through the establishment of a trust, with a fiscal year-end 2014 balance of $7.6 million. The unfunded liability was $50.5 million at fiscal year-end 2014, or a modest 0.8% of market value.

For fiscal 2014, the town's carrying costs, including debt service, pension, and OPEB, totaled an affordable 11.9% of total governmental fund spending.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Underwriter, Bond Counsel, Underwriter Counsel, and Trustee.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984207

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Fitch Ratings
Primary Analyst:
Andrew Hoffman, +1-212-908-0527
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson:
Karen Ribble, +1-415-732-5611
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
[email protected]

Source: Fitch Ratings

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