New Issue: Moody’s assigns Aa1 to Medfield, MA’s $18.7M GO Bonds
Global Credit Research – 07 May 2015
Affirms Aa1, affecting $62.3M of parity debt, post-sale
MEDFIELD (TOWN OF) MA
Cities (including Towns, Villages and Townships) MA
Moody’s Rating
ISSUE RATING
General Obligation Municipal Purpose Loan of 2015 Bonds Aa1
Sale Amount $18,700,000
Expected Sale Date 05/12/15
Rating Description General Obligation
Moody’s Outlook NOO
NEW YORK, May 07, 2015 –Moody’s Investors Service has assigned a Aa1 rating to the Town of
Medfield’s (MA)
$18.7 million General Obligation Municipal Purpose Loan of 2015 Bonds. Concurrently, Moody’s has
affirmed the Aa1 rating on the town’s outstanding GO debt. Post-sale, the town will have $62.3
million of GO debt.
SUMMARY RATING RATIONALE
The Aa1 rating reflects the town’s sound financial position, stable residential tax base with
strong wealth levels and a manageable debt and pension burden.
OUTLOOK
Outlooks are usually not assigned to local government credits with this amount of debt outstanding.
WHAT COULD MAKE THE RATING GO UP
-Increased budget capacity and flexibility
-Material increase in available fund balance
-Large increase in the tax base
WHAT COULD MAKE THE RATING GO DOWN
-Prolonged operating imbalance resulting in a decline in available reserves
-Material decline in tax base or demographic profile
-Significant increase in debt burden
STRENGTHS
-Sound financial position with healthy reserve levels
-Stable tax base with strong wealth levels
-History of voter approvals for overrides and exclusions of Proposition 2 ½
CHALLENGES
-Limited levy capacity and budget flexibility due to Proposition 2 ½
-Planned appropriation of reserves RECENT DEVELOPMENTS
The fiscal 2014 audited financials reflect continued stability in the town’s financial position.
The $1.2 million drawdown of General Fund balance in fiscal 2014 reflects the ongoing planned use
of a restricted debt service reserve. Net of this draw, the town ran a surplus of $709,000 with
little change to available fund balance. Please see the Detailed Ratings Rationale for further
details.
DETAILED RATING RATIONALE
ECONOMY AND TAX BASE: STABLE RESIDENTIAL TAX BASE WITH STRONG WEALTH LEVELS
Medfield is a primarily residential community (95% of the 2015 assessed valuation) with a
population of 12,024, located approximately 20 miles southwest of Boston (Aaa stable). The town’s
$2.4 billion tax base is expected to remain stable with limited growth, reflecting a turnaround in
the regional real estate market. Assessed value increased 4.5% in 2015, bringing the five-year
compound annual growth to 0.6%. The town’s equalized value per capita remains strong at $199,561,
reflecting the strength of the residential sector. In addition, the town has a number of
residential developments underway, including new construction of high-end homes and condos, and a
new apartment complex which will continue to provide annual new growth revenue. Wealth levels are
also substantially higher than state and national averages, with median family income well over two
times the national average. Also, the town’s unemployment rate of 3.7% (January 2015) continues to
fall below the state (5.6%) and US (6.1%).
FINANCIAL OPERATIONS AND RESERVES: SOUND OPERATIONS WITH PLANNED USE OF RESERVES; FUND BALANCE
REMAINS HEALTHY
Medfield will maintain a healthy financial position over the near term given conservative budget
practices and limited, planned draws on reserves. Since 2008, the town’s financial statements
reflect annual use of reserves due to the drawdown of a large grant of $18.1 million from the
Massachusetts School Building Authority (MSBA) to cover school-related debt service. The current
balance of the grant is $10.8 million and is classified as restricted fund balance. The annual
drawdown averages $1.2 to $1.3 million and will continue to be reflected in the town’s annual
operations through 2023, the anticipated final draw date.
The fiscal 2014 operating results when netting out the use of $1.3 million of debt service reserve
appropriations reflects an operating surplus of $708,000, attributable to positive variance in
revenues and expenditures. Available fund balance remained relatively unchanged from the prior year
at $7.3 million, or 13.4% of revenues.
The fiscal 2015 budget increased by 3.9%, or $2.2 million from the prior year, driven by education,
health insurance and employee benefits. The budget was balanced with a 1.4% increase to the tax
levy and free cash appropriations of $1.3 million and $1.2 million from the debt service reserve,
covering both operating and capital needs. As of March, revenues are ahead of budget projections
while expenditures are on budget.
The fiscal 2016 budget increased by 6% from 2015 due to the debt exclusion, education, and employee
benefits. The budget is balanced with a 7.9% tax levy increase, free cash appropriation of $898,000
and $1.2 million from the debt service reserve.
Medfield derives the majority of its revenues from property taxes (67% of 2014 revenues) and
continues to benefit from a strong collection rate of 99% within the fiscal year. Positively, the
town benefits from a history of voter- approved general overrides to the Proposition 2 ½ tax levy
limit. In each of 2008, 2009 and 2012, the town passed a override to aid in general operations of
the town and education expenses, providing some additional revenue flexibility. Our ongoing
assessment of the town’s credit quality will factor in management’s ability to continue to maintain
a nominally balanced budget with sound fund balance levels.
Liquidity
Medfield’s net cash position at the end of fiscal 2014 was $23.2 million, or a healthy 42.4% of
revenues. DEBT AND OTHER LIABILITIES
Medfield’s net direct debt burden of 2.3% of equalized value will remain above average, but
manageable, given average amortization of principal and voter support for debt exclusions. The town
currently has no authorized, but unissued debt, and future debt plans are limited to an elementary
school project with an estimated cost of $30 million and expected no sooner than 2020. Given its
history, approval of future projects will likely include debt exclusions from Proposition 2 ½.
Debt Structure
The town’s principal amortization is average with 78% retired in ten years. Fiscal 2014 annual debt
service represented 8.4% of expenditures and the entire debt portfolio consists of fixed rate debt.
Debt-Related Derivatives Medfield has no derivatives. Pensions and OPEB
The town participates in the Norfolk County Contributory Retirement System, a multi-employer,
defined benefit retirement plan. The town’s annual required contribution (ARC) for the plan was
$1.6 million in fiscal 2014, or 2.9% of General Fund expenditures. The town’s 2013 adjusted net
pension liability, under Moody’s methodology for adjusting reported pension data, is $44.7 million,
or a moderate 0.84 times General Fund revenues. Moody’s uses the adjusted net pension liability to
improve comparability of reported pension liabilities. The adjustments are not intended to replace
the town’s reported liability information, but to improve comparability with other rated entities.
Medfield also makes pay-as-you-go contributions to OPEB in the amount of $1.5 million in 2014,
representing 41% of the ARC. The UAAL is $43 million and the town has established an OPEB trust and
recently began making annual deposits of $400,000. The 2014 total fixed costs for pension, OPEB and
debt service represented $7.8 million or 14% of expenditures.
MANAGEMENT AND GOVERNANCE
Massachusetts cities have an institutional framework score of ‘Aa’ or strong. The primary revenue
source for Massachusetts municipalities is property taxes which are highly predictable and can be
increased annually as allowed under the Proposition 2 ½ levy limit. Expenditures are largely
predictable and cities have the ability to reduce expenditures.
The town’s management team has shown a long term trend of consistent and conservative fiscal
management with multi-year capital planning.
KEY STATISTICS
-2015 Equalized Valuation: $2.4 billion
-2015 Equalized Value Per Capita: $199,561
-Median Family Income as % of US Median: 208.69%
-Fiscal 2014 operating fund balance as a % of revenues: 13.46%
-5-Year Dollar Change in Fund Balance as % of Revenues (2010-2014): 4.58%
-Fiscal 2014 Cash Balance as % of Revenues: 42.56%
-5-Year Dollar Change in Cash Balance as % of Revenues (2010-2014): 0.55%
-Institutional Framework: “Aa”
-5-Year Average Operating Revenues / Operating Expenditures (2010-2014): 0.98x
-Net Direct Debt as % of Full Value: 2.29%
-Net Direct Debt / Operating Revenues: 1.0x
-3-Year Average of Moody’s ANPL as % of Full Value: 1.35%
-3-Year Average of Moody’s ANPL / Operating Revenues: 0.6x OBLIGOR PROFILE
Medfield is a primarily residential community with a population of 12,024, located approximately 20
miles southwest of Boston.
LEGAL SECURITY
Of the current issue, $18 million is secured by the town’s general obligation unlimited tax pledge
as debt service has been excluded from the levy limitations of Proposition 2 ½. The balance is
secured by the town’s general obligation limited tax pledge as debt service has not been excluded
from the levy limit.
Of the town’s $45 million of outstanding debt, $31.7 million is secured by the town’s general
obligation unlimited tax pledge as debt service has been excluded from the levy limitations of
Proposition 2 ½. The balance is secured by the town’s general obligation limited tax pledge as debt
service has not been excluded from the levy limit.
USE OF PROCEEDS
Bond proceeds will be used to finance a public safety building project and solar project. RATING
METHODOLOGY
The principal methodology used in this rating was US Local Government General Obligation Debt
published in January 2014. Please see the Credit Policy page on http://www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides
certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of
the same series or category/class of debt or pursuant to a program for which the ratings are
derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the rating action on the support provider and in relation to
each particular rating action for securities that derive their credit ratings from the support
provider’s credit rating. For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in relation to a definitive rating
that may be assigned subsequent to the final issuance of the debt, in each case where the
transaction structure and terms have not changed prior to the assignment of the definitive rating
in a manner that would have affected the rating. For further information please see the ratings tab
on the issuer/entity page for the respective issuer on http://www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if
applicable, the related rating outlook or rating review.
Please see http://www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s
legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on http://www.moodys.com for additional regulatory
disclosures for each credit rating.
Analysts
Nicholas Lehman Lead Analyst
Public Finance Group Moody’s Investors Service
Thomas Compton Backup Analyst Public Finance Group
Moody’s Investors Service
Geordie Thompson Additional Contact Public Finance Group
Moody’s Investors Service
Contacts
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Moody’s Investors Service, Inc. 250 Greenwich Street
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