Summary: Hartford County Metropolitan District, Connecticut; General Obligation Primary Credit Analyst: Hilary A Sutton, New York (1) 212-438-1000; hilary_sutton@standardandpoors.com Secondary Contact: Henry W Henderson, Boston (1) 617-530-8314; henry_henderson@standardandpoors.com Table Of Contents Rationale Outlook Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JANUARY 25, 2013 1
Summary: Hartford County Metropolitan District, Connecticut; General Obligation Credit Profile US$32.238 mil GO bnds ser 2013 A dtd 02/01/2013 due 02/01/2033 Long Term Rating AA+/Stable New US$26.69 mil GO bnds ser 2013 B dtd 02/01/2013 due 02/01/2033 Long Term Rating AA+/Stable New Rationale Standard & Poor's Ratings Services has assigned its 'AA+' long-term rating to Hartford County Metropolitan District, Conn.'s 2013 general obligation (GO) bonds, series A and B. At the same time, Standard & Poor's affirmed its 'AA+' long-term rating and underlying rating (SPUR) on the district's previously issued long-term debt. The outlook is stable. The 'AA+' ratings reflect our opinion of the district's: Stable and affluent service area, which consists of eight member municipalities in the Hartford region; Very strong general fund reserves, bolstered by additional reserves in the hydroelectric fund, though a general fund drawdown is projected for fiscal 2013; and A sizable capital improvement plan that stems from a consent decree among other legal actions. An offsetting credit factor is the weakened cash position, though management reports no liquidity concerns. We understand bond proceeds will permanently finance the district's bond anticipation notes maturing Feb. 14, 2013. The district's full faith and credit pledge secures the GO bonds. Under its charter, the district is authorized to levy unlimited taxes on each of its member municipalities proportionate to the three-year average of total revenue received from direct taxation within each member municipality. If district taxes are not paid by a municipality when due, the district is entitled to obtain an execution against the goods and estate of the inhabitants of the delinquent municipality. It is our understanding that the district has never imposed any such claim against a member municipality. The Hartford County Metropolitan District provides water, sewer, and other services to an estimated 365,000 people in its eight member municipalities. The district also provides similar services, under special agreements, to nonmember towns and state facilities. The eight member municipalities, which combined have a fiscal 2013 net taxable grand list of $24 billion, consist of: West Hartford (AAA/Stable), 24% of the fiscal 2013 combined net taxable grand list; Hartford (A/Stable), 15%; East Hartford (not rated), 11%; WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JANUARY 25, 2013 2
Summary: Hartford County Metropolitan District, Connecticut; General Obligation Windsor (AAA/Stable), 12%; Newington (AA/Stable), 11%; Wethersfield (AA/Stable), 10%; Rocky Hill (AA/Stable), 9%; and Bloomfield (AA/Stable), 8%. The fiscal 2012 equalized value of $34.3 billion is approximately $95,000 per capita, which we consider very strong. The county's median household effective buying income is 112% of the national average, which we consider strong. Its unemployment rate averaged 9.2% in 2011 and 9% in October 2012 (preliminary). The district initiated a clean water project to address wastewater and stormwater issues, which is expected to cost $2.1 billion and stems from legal actions taken by the State Department of Environmental Protection, the U.S. Department of Justice, and the U.S. Environmental Protection Agency. Although large, we believe the project to be manageable as officials expect to fund 15%-20% with state and federal grants, 30% with state and federal low-cost loans, and the remainder with bonds supported by a special sewer service surcharge. The special sewer surcharge was implemented in fiscal 2008 to pay debt service on projects completed in support of its clean water project. District voters approved $800 million referendums in November 2006 and November 2012 to implement phases I and II, respectively, of the clean water project. The passage rates were 70% in 2006 and 75% in 2012. Management expects to seek voter approval for the final $500 million referendum in 2017. The special sewer surcharge was initially levied at a rate of 35 cents per hundred cubic feet and, following increases in each year, now stands at $2.40. Management expects incremental increases in the surcharge such that it will total $5.45 by fiscal 2020. The district maintains very strong general fund reserves, although cash has dwindled in recent years as receivables have risen. Management attributes the weakened asset mix to increased capital spending as well as a contract dispute with the Connecticut Resources Recovery Authority (CRRA), but reports no liquidity concerns. The general fund primarily reflects the district's sewer operations and closed fiscal 2011 (Dec. 31) with a $205,000 surplus (0.5% of expenditures). The total available general fund balance was $13.3 million, which is a very strong 33% of expenditures and 27% of expenditures and net transfers combined. The largest asset on the balance sheet is a $7.4 million receivable from the Mid-Connecticut Project Fund, which we understand represents costs incurred by the district for which it is seeking reimbursement. The district operated the Mid-Connecticut Resource Recovery Facility pursuant to a contract dated Dec. 31, 1984, with the CRRA. The contract terminated Dec. 30, 2011, and the district and CRRA are entering binding arbitration to resolve various disputes including the payment of pension costs. General fund cash was $6.2 million at the close of fiscal 2011, equal to 45 days' expenditures and net transfers. This ratio is down significantly from fiscal 2009 year-end when it totaled 114 days'. Management indicates that hydroelectric fund reserves, which closed 2011 with a $1.4 million unrestricted balance, are also available to the general fund, providing the district with additional financial flexibility. Major fiscal 2011 general fund revenue sources were property taxes (65%), intergovernmental aid (12%), and sewer user fees (11%). Management projects a $1.3 million general fund surplus for fiscal 2012 and a $3.3 million drawdown for fiscal 2013. The district's overall debt burden, net of self-supported water debt, is moderate at about 3.8% of market value and $3,600 per capita. The district is scheduled to retire about 55% of GO debt principal over the next 10 years, which we WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JANUARY 25, 2013 3
Summary: Hartford County Metropolitan District, Connecticut; General Obligation consider average. The district's five-year capital improvement plan includes: $1.4 billion of additional bonds, including $925 million for the clean water project; $675 million of low-interest state revolving fund loans; and $2.5 million of pay-as-you-go expenditures. The district provides pension benefits through its Metropolitan District Employees' Retirement System; it contributed $4.6 million in fiscal 2011 (31% of the annual required contribution). We understand that the underfunding of this obligation is related to the CRRA dispute but that as of Jan. 1, 2011, the plan was 73.6% funded. The district's other postemployment employment benefits actuarial accrued liability, also as of Jan. 1, 2011, is approximately $219 million, all of which is unfunded. Outlook The stable outlook on the long-term rating reflects Standard & Poor's expectation that the district's property tax base will remain a stable revenue source and that the sewer surcharge will allow the district to maintain a sound financial position as it engages in the very large clean water capital project. We do not expect that the rating to change within the outlook's two-year parameter due to this anticipated financial stability. Related Criteria And Research USPF Criteria: GO Debt, Oct. 12, 2006 Temporary telephone contact for Hilary Sutton: (914) 274-1438. Ratings Detail (As Of January 25, 2013) Hartford Cnty Metro Dist GO Long Term Rating AA+/Stable Affirmed Hartford Cnty Metro Dist GO Unenhanced Rating AA+(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JANUARY 25, 2013 4
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