NEW YORK - Moody's Investors Service said it has downgraded to Baa1 from A3 the town of Rutland, Mass., rating on $28.6 million in outstanding general obligation bonds.
Of the town's total debt, approximately $7.7 million is secured by a general obligation, unlimited tax pledge, as debt service has been exempted from the levy limitations of Proposition 21/2, with the remainder secured by a general obligation, limited tax pledge.
The downgrade reflects the town's trend of narrowing cash and reserve levels over the last four years, a projected further decline in reserves in fiscal 2009 and continuing financial pressure through fiscal 2011. The rating also incorporates the town's above average debt burden and modest tax base with wealth levels above similarly-rated communities.
Moody's believes that the town's narrowing financial position will continue to face pressure due to the use of structurally imbalanced budgets that have consistently relied on reserves to balance the budget resulting in deteriorating financial flexibility.
Limited revenue-raising capacity under the provisions of Proposition 2 1/2, combined with marginal growth in other revenue streams and ongoing personnel-related, education, and debt service expenditures, will challenge the town's ability to regain structural balance, as education and debt service alone account for approximately 70% of the town's total expenditures.
The town's general fund balance declined for the fifth consecutive year in fiscal 2008 to $507,000 (3.7% of revenues; unreserved $398,000, 2.9% of revenues) down from $1.69 million (16.2% of revenues; unreserved $1.5 million, 14.9% of revenues) in fiscal 2004, due largely to lower than anticipated local receipts. During the same time frame, the stabilization fund, which provides the town with additional financial flexibility, also declined to $779,000 from $1.3 million in fiscal 2005.
Available reserves (combined unreserved general fund and stabilization fund) ended the year at $1.2 million (8.6% of revenues), a significant decline from the more healthy level of available reserves, $2.8 million (27.1% of revenues) in fiscal 2005.
Management reports that unofficial fiscal 2009 financial results are expected to show further tightening of town finances as the town was unable to replenish appropriated reserves due to lower than budgeted revenues from local sources. Free cash is expected to be entirely depleted and the stabilization fund falling to $720,000 leaving the town with limited financial resources.
Management has begun to locate areas where the fiscal 2010 budget can be cut and expects the stabilization fund to decline by as much as $200,000. Town officials plan to return to structural balance by the end of fiscal 2011.
Looking ahead to fiscal year-end 2010, Moody's anticipates the town to remain challenged with ongoing expenditure demands, high debt service levels, modest revenue increases, and declining tax base growth. Future rating reviews will incorporate the town's ability to regain structural balance and stabilize or ultimately replenish reserve levels.
Moody's believes that growth in Rutland's $909 million tax base will slow in the near term given a softened housing market. However, under the provisions of Proposition 2 1/2, overall property tax growth is expected to remain steady, with slowdowns occurring in new growth applied to the levy from new construction and improvements to existing structures.
Located in Worcester County, approximately 15 miles northwest of the City of Worcester (G.O. rated A3), the town's equalized value, comprised primarily of residential properties (97% of assessed valuation) has experienced strong and steady growth, increasing at a six-year annual average of 12%, due largely to single family home construction and increasing values.
However, management indicates that overall tax base growth has slowed as the rate of new construction, existing home sales, and overall home values are either flat or declining, with revenue from new construction and improvements experiencing a five-year low in fiscal 2008.
The town's per capita income is below the state median at $23,311 (89.8% of the Commonwealth median) while median family income of $70,689 is above average (114.6% of the Commonwealth median).
Equalized value per capita is well below the Commonwealth median at $115,811, but remains above levels for similarly-rated Massachusetts credits.
Moody's believes that Rutland's above-average 3.8% overall debt burden will remain manageable, given significant state school building aid (66% of project costs) modest self-supporting sewer debt, and limited future borrowing plans.
After adjusting the debt burden to reflect state school construction aid, the debt burden declines to an average 2.4% of full value. The town's above-average debt service expenditures, (19.5% of expenditures in 2008) and average amortization of principal (62.9% within 10 years) is expected to improve in future years, as the town, recently completing a series of larger capital projects, has no near-term borrowing plans. Rutland has no exposure to variable rate debt or derivative agreements.
