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City Bond Rating Holds, But One Firm Sees Negative Outlook

By Jeffrey B. Cohen

October 02, 2009

Little bit of good news, little bit of bad news.

Last week, the city announced in a press release that its "finances make the grade," pointing to an "A" bond rating by Standard & Poor's Rating Services on a recent bond sale. For various complicated reasons, that bond sale saved the city roughly $100,000 this year, and Mayor Eddie A. Perez said the rating confirmed "the confidence in Hartford's current and future financial outlook despite the country's economic downturn."

What the city didn't mention - or apparently know - at the time was that another rating agency (Fitch's) revised its outlook on the city's finances from stable to negative just the week before. It's the second such firm to do so this year. The reason? The "significant decline in Hartford's unreserved general fund balances over the past two fiscal years..."

That is, the city is spending its rainy day fund.

Judge for yourself. Below are the mayor's press release, as well as the two reports.

S&P Rating -.pdf

CITY OF HARTFORD FINANCES MAKE THE GRADE

---NEWS AND COMMUNITY RELEASE---

(September 23, 2009) --- The City of Hartford has received an "A" from Standard & Poor's Rating Services. This demonstrates the city's bond, credit, and market strength.

Mayor Perez says, "This confirms the confidence in Hartford's current and future financial outlook despite the country's economic downturn. Together, we have implented strategies that will help Hartford pull through these challenging budgetary times. I remain vigilant in tackling the issues that face Hartford and am confident that we will overcome the hurdles as they present themselves, especially because of our strong general fund and fully funded pension plan."

David Panagore, the City's Chief Operating Officer adds, "Hartford is proud of its job creation efforts. The Capital City hosts more than 115,000 jobs and Northeast Utilities has relocated its headquarters here. This is a sure sign of confidence."

Finance Director Christopher Wolf also notes the increase in the City's Grand List and says, "The challenges would have been greater if the City, under the Mayor's leadership, did not implement expenditure cuts such as the 120-person staff reduction and the fee and permit increases."

Mayor Perez thanks the financial and budgetary teams for their diligence in monitoring these economic challenges and helping to steer a prudent course.

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Fitch Affirms Hartford, Connecticut's GOs at 'A'; Outlook to Negative Ratings

17 Sep 2009 4:29 PM (EDT)

Fitch Ratings-New York-17 September 2009:

In the course of routine surveillance, Fitch Ratings affirms the 'A' rating on the city of Hartford, Connecticut's approximately $248.6 million of outstanding general obligation (GO) bonds, consisting of the following issues:

--$25 million general obligation bonds, issue of 2004;

--$25.5 million general obligation bonds, series 2005D;

--$59 million general obligation bonds, series 2006;

--$62.6 million general obligation bonds, series 2007A;

--$17.4 million general obligation refunding bonds, issue of 2003;

--$23.2 million general obligation refunding bonds, series 2005A;

--$7.8 million general obligation refunding bonds, series 2005B (Taxable);

--$28.1 million general obligation refunding bonds, series 2005C.

Fitch revises the Rating Outlook to Negative from Stable.

The Negative Outlook reflects the significant decline in Hartford's unreserved general fund balances over the past two fiscal years that has reduced the city's overall financial flexibility. An expected $12 million general fund deficit in fiscal 2009 resulted from an $18 million revenue shortfall that was only partially offset by $6 million of expenditure savings; this follows a $6.6 million operating deficit in fiscal 2008. The city's fiscal 2009 unreserved general fund balance is expected to fall to a slim 2.8% of spending from 6.7% in fiscal 2007. Hartford has not met its fund balance policy level of 7% of spending since fiscal 2001, and any further deterioration of the city's financial flexibility could lead to a rating downgrade. Management's commitment to rebuilding fund balances over time is critical to maintaining the city's current rating level.

The 'A' rating reflects the city's thin reserve levels, weak economic indicators, and above-average debt ratios that are expected to remain elevated. Positive rating considerations include the city's fully funded pension plan and manageable other post-employment benefits liability, as well as the recent addition of a fourth Fortune 500 company (Northeast Utilities) to the city and the lease renewals and expansions of several notable insurance companies.

Hartford benefits from the stability provided by numerous state government offices and the long-standing presence of various financial and insurance sector companies. Aetna Life Insurance Company and The Hartford Financial Services Group are expanding, and two additional large insurance companies recently renewed their leases in the city. However, the high number of finance and insurance sector companies provides some degree of employment and tax base concentration risk, and local economic indicators remain weak. The city's per capita income levels register just 48% and 65% of the state and national averages, respectively, and the city's unemployment rate increased to a high 13.9% in July 2009. Tax base growth has been stagnant this decade.

Overall debt levels are above-average at $2,894 per capita or 7.2% of taxable market value, and the city's additional bonding plans should keep debt levels high. However, the debt service burden represents an affordable 6.3% of general fund spending, despite an above-average amortization rate of 64% within 10 years. Hartford's primary pension plan was a healthy 102.2% funded as of the July 1, 2008 valuation date, and the city's other post-employment benefits obligation equals a manageable $319 million.

Fitch affirmed the rating on all of the city's outstanding GO bonds in previous rating action commentaries. However, Fitch rates only the bonds listed above.

Contact: Ryan A. Greene +1-212-908-0315 or Ann Flynn +1-212-908-9152, New York.

Media Relations: Cindy Stoller, New York, Tel: +1 212 908 0526, Email: cindy.stoller@fitchratings.com.