Pension funding drives positive Fitch outlook for a Connecticut city

Adobe Stock

When New Britain, Connecticut, tests the bond market later this year, it can show off a brighter outlook from Fitch Ratings.

Fitch last week revised the A-rated city's outlook to positive from stable, citing "recent steady operating performance and improved budgeting practices." 

When Finance Director Jonathan Perugini saw the city's annual financial surveillance report, he thought it was so positive he decided to send it to Fitch Ratings and ask for an upgrade. 

New Britain will put its new outlook to use later this year, Perugini said, in a bond issuance planned sometime around September. 

S&P Global Ratings also assigns its A rating to New Britain. Last year, S&P revised the city's outlook to stable from negative.

For many years, if the city of 74,000 had a budget shortfall, it would pay less than its actuarially determined pension contribution, Perugini said. 

But from fiscal 2024 through the coming fiscal 2026 budget year, he said, the city paid the full ADC. 

New Britain also had a very strong year for revenue, Perugini said. 

The unassigned fund balance increased $9.8 million from the prior year, Perugini said. That drove the general fund's revenues from $25 million to $34.9 million. 

"Fitch is finally seeing what New Britain knew all along," Perugini said, "that from '24 on, we're primed in a good position for cash, as well as from a financial standpoint." 

New Britain also used to issue bonds annually and regularly restructure debt to achieve budgetary flexibility. Cutting down on this practice, Perugini said, was also a factor in Fitch's positive outlook. The city also changed its banking practices to increase its revenue. 

"We took a material weakness with bank reconciliations and re-imagined them and turned them into interest income," Perugini said.

Fitch upgraded the city to A from A-minus in 2024, reflecting changes in the rating agency's U.S. local government rating criteria.

Fitch said that if the city continues to pay its pension obligations in full and sees a continued trend of structural operating performance it could be upgraded one or two notches. 

Perugini said the city intends to follow through on its current performance and reap a higher rating. 

"They like our budgeting practices," Perugini said. "They like our year-end results. And we're just going to keep continuing it."