New Haven, Conn., has a negative outlook from all three major rating agencies, but a city official speaking ahead of two general obligation bond sales would rather emphasize the positive.
"We focused on the fact that we weren't downgraded. When you look at the environment we're in, you see that the state and federal government have been downgraded and we weren't," Controller Mike O'Neil said Wednesday in an interview.
New Haven, with a 130,000 population and home to Yale University, plans GO sales Thursday and next week totaling $89 million.
Standard & Poor's and Fitch Ratings last week lowered their outlooks to negative from stable. Moody's Investors Service assigned a negative last year. All three affirmed their ratings. Standard & Poor's rates the bonds A-minus, Fitch assigns an A-plus and Moody's rates them A1. In January, Moody's lowered Connecticut's GO rating to Aa3 from Aa2.
Standard & Poor's and Fitch cited persistent structural imbalances and significant pension and other post-employment benefits liabilities, despite the city continuing to fund 100% of its actuarially required contributions. New Haven's two primary systems, nonteacher public employees and police-fire pensions, are funded at 46% and 50%, respectively.
Standard & Poor's said New Haven's structural budget imbalances have led to reliance on one-time revenues and thin reserves. "The negative outlook also reflects a significant drawdown expected by management in general fund reserves in fiscal year 2012, due, in part, to revenue shortfalls, as well as expenditure cuts that did not fully materialize," the agency added.
New Haven plans to use proceeds from Thursday's $46 million Series 2012A bond sale to refund all or a portion of Series 2002B and 2004 bonds. It expects to save roughly $5.5 million. The city's full faith and credit pledge secures the bonds. The final maturity will be 2022 for Series A and 2032 for Series B.
Proceeds from next week's $43 million new-money Series B sale will finance capital improvement and school construction projects. Capital improvements include infrastructure work around the planned 100 College St. development under the Downtown Crossing project, the land disposition agreement of which will go before the Board of Aldermen next Tuesday.
Alexion Pharmaceuticals Inc. of Cheshire plans to move its headquarters into that development, filling about 75% of the building.
Both rating agencies cited the stabilizing influence of Yale and Yale-New Haven Hospital, the city's two top employers. Both attract investment in the biotechnology and pharmaceutical sectors.
"We have a vibrant university and health care presence," O'Neil said.
According to Yale's Office of New Haven and State Affairs, the Ivy League university pays $4 million in annual property taxes, has paid $25 million in permit fees over the last three years and has made voluntary payments to the city, including $8.1 million last year. Additionally, New Haven receives $30 million annually from Connecticut as reimbursement for the revenue loss due to Yale's tax-exempt property.
New Haven also plans to use about $6 million of bond proceeds to finance a portion of the $20.7 million deficit in its internal services fund associated with legal settlements and other claims.
New Haven recently adopted its fiscal 2013 budget of $487 million, a 2.4% increase. While praising officials for budget tightening, agencies said labor concessions savings were iffy. "Potential savings from ongoing union negotiations are expected to provide budget relief, but the outcome of negotiations and the magnitude of the savings are uncertain," Fitch said.
Piper Jaffray & Co. is the lead manager for the bond sales. Wells Fargo Securities and Raymond James-Morgan Keegan are co-lead managers. Robinson & Cole LLP is bond counsel. Public Financial Management Inc. is the financial advisor.
