West Haven credit quality hinges on plan execution, S&P says
West Haven’s credit quality hinges on how well it executes a five-year plan that a Connecticut fiscal oversight board approved, according to S&P Global Ratings.
Connecticut's Municipal Accountability Review Board on Nov. 1 conditionally approved the West Haven’s City Council-approved planning framework designed to restore budget balance to the 55,000-population city.
The city’s plan includes mill-rate increases over five years, to 39.99 from 32.36.
“Although we view the state's oversight mechanism and requirements as providing short-term budgetary stabilization for West Haven positively, we believe the city faces long-term implementation risks stemming from a weak management environment, difficulties providing timely financial disclosure documents to the MARB, and potential state-level gridlock that could complicate these efforts,” S&P said.
S&P rates West Haven’s general obligation bonds BBB, or two levels above speculative grade. Its outlook is stable. Moody’s Investors Service rates the city’s GOs Baa3 — just above junk — with a negative outlook.
West Haven is a Tier III city under MARB. Tier III status enables MARB to approve city budgets, a five-year recovery plan, labor contracts and provide feedback on bond issuance.
Under the oversight board’s approval, the city will receive $8 million in state municipal restructuring funds to help defray its fiscal 2018 deficit and up to $8 million more in fiscal 2019. S&P called it “a positive first step towards closing near-term revenue and expenditures gaps in West Haven's current-year operating budget and easing dependence on deficit bonding or debt restructurings.”
West Haven may also be eligible to receive state funds in declining increments over the three following fiscal years — $6 million in 2020; $4 million in 2021; and $2 million in 2022. Receiving those funds, however, hinges on improvements in remedial planning, budgeting and financial reporting.
MARB's conditions include withholding of state aid if $1.75 million for prior deficit reduction is used for any other purpose, or if the city does not transfer to the state Office of Policy and Management the $250,000 it must pay for MARB expenses.
West Haven must also submit a final independent audit for fiscal 2018, complete a study of the city’s three fire departments, and select a vendor to complete the study.
After years of budget deficits, the loss of manufacturing business and internal bickering, West Haven triggered MARB's radar in November 2017 when the city issued $16.1 million of deficit-reduction bonds. The offering still left West Haven $1.4 million short for fiscal 2017.
Connecticut's General Assembly created the 11-member MARB when it passed its fiscal 2018 budget. The lone municipalities under its watch, West Haven and state capital Hartford, are in Tier III under a categorization system.
Tier IV, the strictest oversight, would expand the board's role, including tighter budgetary control and the ability to appoint a financial manager.
MARB rejected West Haven’s plan in June, sending Mayor Nancy Rossi and the council back to the drawing board.