NYC Firms on Fairfield Finances

The following are excerpts from reports on Fairfield finances from Moody's Investors Service, Standard & Poor's and Fitch Ratings, which were written in advance of the town's sale on Tuesday of $25 million in bonds to finance town projects, notably the expansions and renovations of Stratfield School and Fairfield Woods Middle School.

Standard & Poor's:

"We believe Fairfield maintains a stable financial profile due to its experienced management team, good financial policies, and strong and diverse property tax base. Property taxes generate about 90% of the town's general fund revenues while state aid contributes roughly 4%. Strong tax collections, at an average of 99%, provide good financial stability; and the limited dependence on state aid insulates the town from fluctuations. Moreover, over the past four fiscal years, the town has maintained reserves at, in our opinion, adequate-to-good levels. In fiscal 2009, despite a modest fund equity decline, the town closed the unreserved general fund with a $12.5 million balance, or 5.0% of expenditures, up from $10.2 million, or 4.1%, in fiscal 2008."

"To management's credit, we believe the town has been successful in making the necessary budgetary adjustments to offset lower local receipts, given the economic downturn. In fiscal 2010, management is projecting yet another large operating surplus; and it expects to boost available reserves by an additional $2 million. Officials balanced the 2011 budget, which continues to build on cost-savings initiatives implemented in 2009."

"The stable outlook on the long-term rating reflects Standard & Poor's opinion of the town's strong property tax base, high wealth levels, manageable debt burden, and good adopted fiscal policies. While we believe the town will continue to face budgetary challenges in this economic environment, in our view, the town maintains an adequate reserve position and a demonstrated record of making necessary budgetary adjustments. Moreover, we believe Fairfield's ability to raise millage rates when needed and very strong collection history should provide the operating flexibility to manage through the weaker economy without having an adverse effect on its overall financial position."

Moody's Investors Service:

"Despite the town's improved General Fund financial position, reserve levels remain slim and below the level set forth by the town's General Fund policy which requires the total balance to be maintained between 6% and 9% of budget. The General Fund balance has averaged $11.6 million (a below average 4.7% of General Fund revenues) over the past three years, ending fiscal 2009 noticeably below the median (12.5% of General Fund revenues) for Aaa-rated Connecticut municipalities. Officials project a surplus between $2 million to $2.5 million at fiscal 2010 year-end, due to property taxes and conveyance tax receipts exceeding budget and expenditure savings across all departments. Accordingly, total General Fund balance is expected to increase to $13.2 million (an adequate 5.4% of General Fund revenues) of which $12.5 million or 5% of General Fund revenues is projected to be undesignated. Moody's recognized the town will be in compliance with its General Fund policy in regard to the undesignated fund balance requirement (5% to 8% of General Fund revenues), however reserves remain low in comparison to similarly rated credits."

"While management has taken various measures to improve the town's financial position, the town faces challenges with its internal service fund (which includes its risk management, town and Board of Education medical insurance benefits.) The internal service fund's unrestricted net asset position grew to negative $4.9 million which is up from fiscal 2007 at negative $3.5 million. Officials estimate the deficit will slightly improve to negative $4.5 million at fiscal 2010 year-end. General Fund balance was inflated by a $1.8 million receivable from the internal service fund at fiscal year 2009 year-end. This receivable is estimated at $3.5 million at fiscal 2010 year-end, which will again inflate total General Fund balance by the like amount. Management reports health insurance and worker's compensation expenditures came in below fiscal 2011 budget projections and plans to use the savings toward eliminating the deficit."

"The negative outlook reflects the town's improved yet still weak financial position in comparison to similarly rated credits and inability to implement a plan to eliminate a long standing internal service fund deficit. Future credit reviews will heavily factor the town's ability to build reserves to a level in-line with similarly rated entities and fully fund its internal service obligations in the near term."

Fitch Ratings:

"The town of Fairfield's sound operating results and solid reserve levels are the result of its strong financial management and prudent and conservative budgeting practices. The town projects positive operating results for fiscal 2010 as a result of management's responsiveness in making appropriate spending cuts in order to maintain adequate fund balance levels. The local economy is diverse and positive economic indicators include very high income levels and below-average unemployment rates. Overall debt levels are low to moderate with above-average amortization, and the town's pension liabilities are well funded and other post employee benefits (OPEB) liabilities are manageable. The town benefits from its proximity to New York City, New Haven, Hartford and Stamford employment centers."

"The bulk of the town's revenues are derived from property taxes and these revenues have increased steadily the last three years. Similar to other New England communities, the town's finances were stressed in 2009 as a result of the downturn in the economy, but management was able to curtail spending and overtime payroll, as well as reduce staff to offset the increased health and employee costs and decreases in conveyance taxes, building permits and investment income. As a result, it ended fiscal 2009 with positive general fund operating results and an increase of $1.2 million in its undesignated unreserved fund balance to $10.3 million. Although the town's total general fund balance declined by $321,000 to $11.2 million, or 4.4% of expenditures and transfers, this was the result of a drawdown in encumbrances previously held in reserve. The town anticipates positive operations in fiscal 2010 with an operating surplus of $2.25 million as property tax collections and conveyance fees have exceeded targets. Fiscal 2010 estimates are for a 5.4% total fund balance and 5% undesignated fund balanace which is at the lower end of the town's 5%-7% total general fund balance policy. The unreserved fund balance has ranged from 3.6% to 4.2% the last four years due, in part, to the town's practice of using reserve funds for capital projects. Management has indicated it is planning to build up its reserve funds over the next few years."