Earlier this week, financial analysts at Moody's upgraded Port Chester's rating to the lofty double-A, or "Aa" rating – the second-highest rating granted by the firm and the highest ranking Port Chester has ever received from an outside analyst.
To read a summary of the report and reaction from Port Chester's professional staff, .
Below is the full report from Moody's:
MOODY'S ASSIGNS A Aa3 AND MIG1 RATING TO THE VILLAGE OF PORT CHESTER’S (NY) $3.52 MILLION G.O. REFUNDING BONDS, SERIES 2011 AND $2 MILLION BOND ANTICIPATION NOTES, SERIES 2011A
UPGRADE TO Aa3 RATING AFFECTS $38.5 MILLION OF OUTSTANDING G.O. DEBT, INCLUDING CURRENT ISSUE
Moody's Investors Service has assigned a Aa3 rating to the Village of Port Chester’s (NY), $3.52 million Public Improvement Serial Bonds, Series 2011 and MIG 1 rating to $2 million Bond Anticipation Notes, Series 2011A. Concurrently, Moody's has upgraded the Aa3 rating on the village's $36.5 million in previously issued outstanding long term parity debt. Proceeds from the series 2011 serial bonds, secured by the village's general obligation unlimited tax pledge, will advance refund previously issued series 2001 bonds while proceeds from the series 2011A Bond Anticipation Notes (BANs) will finance an array of new capital improvements throughout the village.
SUMMARY RATING RATIONALE
The Aa3 rating factors the village's moderately sized tax base with an above-average commercial presence, manageable debt burden with limited borrowing plans, and a healthy financial position. The MIG1 reflects Moody’s belief that the village will be capable of attaining sufficient market access due to its sound underlying credit rating. While the village has no recent bid history for short term notes it did receive 2 bids on its 2010 bonds.
-Moderately sized tax base
-Strong financial reserves and with high liquidity
-Higher than average debt service burden as a % of expenditures
-Declining state aid
DETAILED CREDIT DISCUSSION
DEMONSTRATED MARKET ACCESS
Despite the lack of recent history of competitive bids on Bond Anticipation Notes (BANs) or other note sales, Moody's expects the village to demonstrate satisfactory access to the capital markets given their healthy cash position and strong underlying credit rating. The last BAN sale undertaken by the village was more than ten years ago; however, the village did receive 2 bids on its most recent bond sale. Additionally, similarly rated villages in the region have recently received strong responses from a mix of major national financial institutions, mid-sized regional banks and local banks. Port Chester’s favorable cash position and strong underlying credit rating indicates the town's ability to refund these notes, if necessary, at their February 28, 2012 maturity.
HEALTHY FINANCIAL POSITION; MANAGEMENT INCREASING RESERVES
Moody's believes the village's financial position has significantly improved over the past six years and will remain strong given strong fiscal management. The village's operating reserves reached $8.9 million, or 25.1% of fiscal 2010 General Fund revenues, a significant increase from $1.0 million or 4.3% of revenue in fiscal 2004. The five year trend of operating surpluses was driven by conservative budgeting on expenditures despite recent underperformance in various revenues. Fiscal 2010 ended with a $440,000 increase in General Fund balance to $8.9 million or 25.1% of revenue. The surplus was driven primarily through better than expected sales tax revenue, resulting from conservative budgeting, and continued management of expenditures through further reductions of staff. While sales tax revenues were approximately flat on a year over year basis, the village generated a $700,000 positive budget variance due to notably reduced estimates. During the year, Port Chester modified their originally budgeted general government support expenditures by $1.1 million to incorporate payments due on recent legal settlements, $483,000 of which was used to settle a nine year litigation involving a condemnation of property, while $360,000 was paid out toward the remedy of a case involving fair voting opportunities throughout the village. The majority of these expenditures were paid out of undesignated General Fund balance; however, the village issued a $483,000 statutory note to help offset a portion of the outlay. A third litigation against the village is currently pending and with a potential $2.3 million liability as a result of a mechanics lien disagreement with an electronics company. Village management and their legal counsel do not expect to receive an unfavorable outcome. Looking ahead to fiscal 2011 (ending May 31st), management expects to generate their sixth consecutive surplus (estimated $1.3 million) due to continued strength in sales tax revenue and more employees taking advantage of retirement incentives than originally estimated. As a result, the village is projecting ending General Fund balance to be $10.2 million or 30% of revenue after replenishing the $1.1 million appropriated in the original budget.
MODERATELY SIZED TAX BASE WITH PROXIMITY TO NEW YORK CITY
Moody's believes the village's $3.1 billion tax base may experience essentially flat near term growth as a result of the recession but will continue to benefit from its proximity to employment opportunities in New York City (G.O. rated Aa2/stable) over the long term. Over the past five years, assessed valuation increased at an average rate of 3.2% annually, which includes declines of 2.2% and 0.8% in 2010 and 2011 respectively, due mainly to the ongoing economic recession’s impact on new development and real estate values as well as a few successful tax appeals. Since the village utilizes a 100% equalization, full valuation performed the same. The village is predominately residential in nature with an above-average commercial/industrial presence (38% of tax base). The village is currently improving its downtown core and expects additional, mixed-use development over the next 2-3 years that approximate 170 residential units. Further, a larger, 760 unit residential towers with retail and office space has been proposed for construction to begin 3 to 6 years out. Wealth levels are average, with per capita income equal to 90.3% and 97.9% of state and national medians, respectively. Full value per capita is healthy at $109,615.
MANAGEABLE DEBT BURDEN
Moody's expects the village's debt burden (1.3% of full value) will remain manageable in the medium term given a satisfactory rate of principal amortization (70.4% repaid within ten years) and moderate future borrowing plans in the coming year. The village's overlapping debt burden increases to a relatively higher 2.3% when the village's pro rata share of overlapping county and municipal debt obligations are included. In keeping with its historical trend, the village plans to issue additional debt within the year for ongoing capital maintenance. Other possible borrowing includes a failing bulkhead improvement project on a newer waterfront development, which would allow the village to finance the project and subsequently offset the debt services through the implementation of a special tax district. Debt service expenditures comprise a moderately high, but still manageable, 11.8% of fiscal 2010 General Fund expenditures. All outstanding debt is fixed rate and the village has no exposure to derivative instruments.
What could make the rating go up:
Substantial tax base and economic growth
Financial operating performance that continues to build cash and financial reserves
Significant reduction in debt burden
What could make the rating go down:
Ongoing economic and tax base declines
Large payouts for tax appeal or litigation settlements that negatively impact the city’s financial position
Operating deficits that significantly reduce Current Fund reserves
Significant increase in debt burden
2000 Population (2008 estimate): 27,867 (28,171, a 1.1% increase)
2010 Full valuation: $3.1 billion
2010 Full value per capita: $109,615
Direct debt burden: 1.2%
Overall debt burden: 2.3%
Payout of principal (10 years): 70.4%
Fiscal 2010 General Fund balance: $8.9 million (25.1% of General Fund revenues)
1999 Per capita income: $21,131 (90.3% of the state and 97.9% of the US)
1999 Median family income: $51,025 (98.7% of the state and 102.0% of the US)
Post-sale parity GO debt outstanding: $38.5 million (including BANs)
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