Seekonk Town, Massachusetts; General Obligation
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Summary: Seekonk Town, Massachusetts; General Obligation Primary Credit Analyst: Lauren Freire, New York + 1 (212) 438 7854; lauren.freire@spglobal.com Secondary Contact: Christian Richards, Washington D.C. + 1 (617) 530 8325; christian.richards@spglobal.com Table Of Contents Rating Action Stable Outlook Credit Opinion Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 1
Summary: Seekonk Town, Massachusetts; General Obligation Credit Profile US$12.98 mil GO sch bnds ser 2021 dtd 09/09/2021 due 09/01/2041 Long Term Rating AA+/Stable New Seekonk Twn GO Long Term Rating AA+/Stable Affirmed Seekonk Twn GO mun purp loan of 2020 bnds Long Term Rating AA+/Stable Affirmed Rating Action S&P Global Ratings assigned its 'AA+' rating and stable outlook to Seekonk Town, Mass.' roughly $12.98 million general obligation (GO) school bonds and affirmed its 'AA+' rating, with a stable outlook, on Seekonk's existing GO debt. The town's full-faith-and-credit pledge, subject to Proposition 2 1/2 limitations, secures the bonds and existing debt. The town voted to exempt $12 million of the total amount from Proposition 2 1/2 limitations. Depending on the project, debt could be subject to Proposition 2 1/2 limitations. We have not made a rating distinction between the town's limited-tax GO pledge and general creditworthiness. Despite limitations imposed by the commonwealth levy-limit law on a portion of the bonds, our analysis' financial and economic conditions already include the tax limitation imposed on the town's ability to raise revenue and the fungibility of those resources. Officials intend to use bond proceeds to finance bond anticipation notes permanently, originally issued for capital improvements for a elementary-school building. Credit overview The rating reflects our opinion of Seekonk's stable economic growth and operating results during the past several fiscal years, including its ability to maintain financial balance throughout COVID-19 and the recent related recession, demonstrating its very strong financial-management environment. Including stabilization reserves, Seekonk has consistently maintained very strong reserves and liquidity, which we think positions the town with the financial flexibility to make necessary adjustments during the current economic recovery. However, we continue to monitor the effect of pension and other postemployment benefits (OPEB) on operations. The rating reflects our opinion of Seekonk's: • Strong economy, with access to a broad and diverse metropolitan statistical area (MSA), yet a high county WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 2
Summary: Seekonk Town, Massachusetts; General Obligation unemployment rate exceeding 10%; • Very strong financial management, with strong financial policies and practices under our Financial Management Assessment (FMA) methodology; • Strong budgetary performance, with an operating surplus in the general fund and a slight operating surplus at the total governmental fund level in fiscal 2020; • Very strong budgetary flexibility, with available fund balance in fiscal 2020 at 19% of operating expenditures; • Very strong liquidity, with total government available cash at 23.5% of total governmental fund expenditures and 11.7x governmental debt service, and access to external liquidity we consider strong; • Very strong debt-and-contingent-liability profile, with debt service carrying charges at 2% of expenditures and net direct debt that is 31.8% of total governmental fund revenue, as well as low overall net debt at less than 3% of market value and rapid amortization, with 68.2% of debt scheduled to be retired within 10 years, but a large pension and OPEB obligation; and • Strong institutional framework score. Environmental, social, and governance (ESG) factors We have evaluated ESG risks relative to Seekonk's economy, financial measures, management, and debt-and-long-term-liability profile and have determined they are in-line with its peers and sector standards. Seekonk recently became a municipal-vulnerability-preparedness program community, and it is now working through issues raised during planning. Stable Outlook Downside scenario We could lower the rating if economic pressure were to result in revenue and expenditure imbalance, resulting in a material reserve decrease with no clear plan to correct it. Upside scenario Outside of the two-year outlook, we could raise the rating if underlying wealth and income were to grow to levels we consider commensurate with higher-rated peers and if unfunded retirement liabilities were to decrease significantly. Credit Opinion Strong economy We consider Seekonk's economy strong. The town, with a population estimate of 14,718, is in Bristol County in the Providence-Warwick MSA, which we consider broad and diverse. Projected per capita effective buying income is 136% of the national level and per capita market value is $180,952. Overall, market value has grown by 2% during the past year to $2.7 billion in fiscal 2021. County unemployment was 10.2% in 2020 due to COVID-19, which we consider high and a negative credit factor. We changed our view of the economy to strong from very strong due to county unemployment averaging more than WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 3
Summary: Seekonk Town, Massachusetts; General Obligation 10% in 2020; however, unemployment had a limited effect on financial performance. We expect that improvement through the latter half of 2020 will likely continue through 2021 and that our view of the economic profile will ultimately return to very strong. Seekonk is a primarily residential community with a sizable commercial property tax base, primarily centering on large retail stores. Residential assessed value (AV) accounts for 76.6% of total AV. The town's residential sector continues to expand with new subdivisions created to meet market demands. We understand Seekonk is working through the final development stages of a master-economic-development plan. Management expects the plan to help diversify economic growth and development while enhancing the town's character. Seekonk specifically is looking to diversify areas with elevated commercial concentration. It has also created a marijuana-retail district, which should provide additional revenue beyond property taxes. We expect the tax base will likely remain stable with the town's participation in a broad and diverse MSA bolstering our view of its economic profile. Very strong management We view the town's financial management as very strong, with strong financial policies and practices under our FMA methodology, indicating financial practices are strong, well embedded, and likely sustainable. We have revised our view of the town's policies and practices with the formalization of fund balance and debt policies. Management uses three years to five years of historical trends when developing revenue and expenditure assumptions. We note that in the current environment, it is revising assumptions for the upcoming budget downward due to trend data to account for expected changes in certain revenue. Management incorporates information from outside sources, including the commonwealth and other groups when developing projections. Management provides monthly budget-to-actual reports to the town board, which could amend the budget through the town meeting process. Other highlights include management's: • Five-year budget projections that control expected revenue and expenditure changes and facilitate budget discussions; • Five-year, annually updated, capital investment plan that identifies projects by year and funding; • Formal reserve policies; • Targeting of a minimum balance of 10% of unspent free cash from fiscal year to fiscal year; • Maintaining a general stabilization fund of no less than 7% of the prior-year tax levy for the purpose of extraordinary or unforeseen expenditures; and • Goal of maintaining a capital stabilization fund equal to a minimum 3% of the prior-year tax levy. Seekonk's debt-management policy has numerous facets; its main component is an annual debt-service requirement that should not exceed 10% of general fund annual revenue, excluding enterprise funds. In addition, the policy outlines guardrails on debt timing, type, and issuance requirements. Seekonk adheres to commonwealth law on general fund investments and makes annual reports in the audit. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 4
Summary: Seekonk Town, Massachusetts; General Obligation Strong budgetary performance Seekonk's budgetary performance is strong, in our opinion. The town had surplus operating results in the general fund at 2.3% of expenditures and slight surplus results across all governmental funds at 1.1% in fiscal 2020. We adjusted budgetary performance to account for recurring transfers and bond proceeds. Recurring revenue and expenditures have generally come in on budget at fiscal year-end. Despite pressure on revenue and expenses during the last quarter of 2020, revenue exceeded budgeted levels. In addition, Seekonk had expenditure turnbacks in a majority of line items. Property taxes generated 67% of audited general fund revenue in fiscal 2020 while intergovernmental revenue accounted for 23% and excise taxes 4%. The fiscal 2021 budget reduced several miscellaneous and economically sensitive revenue items while keeping expenses tight to expected needs. Officials expect strong revenue collections, spurred by improving economic conditions in the latter half of fiscal 2021. Holding positions vacant helped spur significant turnbacks in salaries and benefits. Based on current projections, the town expects a surplus for fiscal 2021 and a slight increase to free cash. In addition, the town has been allocated federal aid during the past two years: • $1.38 million in Coronavirus Aid, Relief, & Economic Security Act funding--It received roughly $833,000 so far; and • $1.65 million in the American Rescue Plan Act of 2021 funding. Currently, the town does not have firm plans for federal funds. The fiscal 2022 budget does not materially differ from fiscal 2021 because management did not significantly cut back staffing or services despite expected closures in areas such as parks and recreation. Revenue assumptions have not returned to prepandemic levels, but they have increased from fiscal 2021 conservative estimates. Seekonk reports no major revenue reductions in these areas, but we think significant uncertainty remains in projecting actual receipts. We do not currently foresee material expenditure variances. Very strong budgetary flexibility Seekonk's budgetary flexibility is very strong, in our view, with available fund balance in fiscal 2020 at 19% of operating expenditures, or $12.2 million. Our calculation includes available reserves and certain stabilization funds held in committed general fund reserves management can make available for operational costs or debt service in a stress scenario. We do not currently expect a material decrease in reserves, and we expect our view of budgetary flexibility will likely remain very strong. We note Seekonk is currently complying with its adopted formal fund-balance policies. Very strong liquidity In our opinion, Seekonk's liquidity is very strong, with total government available cash at 25.3% of total governmental-fund expenditures and 11.7x governmental debt service in fiscal 2020. In our view, the town has strong access to external liquidity if necessary. We adjusted available cash to include general-fund investments but exclude nonmajor fund cash we consider generally restricted. In our opinion, Seekonk has demonstrated strong market access by issuing GO bonds during the past WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 5
Summary: Seekonk Town, Massachusetts; General Obligation several years. Seekonk does not have any contingent-liquidity risk from financial instruments with payment provisions that change upon the occurrence of certain events. We think liquidity will likely remain very strong. Very strong debt-and-contingent-liability profile In our view, Seekonk's debt-and-contingent-liability profile is very strong. Total governmental fund debt service is 2% of total governmental fund expenditures, and net direct debt is 31.8% of total governmental fund revenue. Overall net debt is low at 0.9% of market value and officials plan to retire approximately 68.2% of direct debt during 10 years, which are, in our view, positive credit factors. Following this issuance, Seekonk will have approximately $22.8 million in debt outstanding, including capital leases. We understand that after this issuance, the town has $2.9 million of authorized, but unissued, debt remaining, which we do not view as a material amount. Pension and OPEB highlights: • In our opinion, Seekonk's large pension and OPEB obligation, despite a low carrying charge, is a credit weakness. • While the pension plan uses actuarially determined contributions, we think some assumptions could result in contribution escalation and volatility. • Seekonk prefunds OPEB obligations, which we consider positive; it does have a formal funding policy--However, we expect liabilities and costs to increase. The town participates in: • Bristol County Retirement System, which was 61.2% funded, with a $31.6 million proportionate net pension liability; and • Seekonk's retiree health and life insurance through various contributory plans, which was 7.17% funded, with a $40.8 million net OPEB liability. Seekonk's pension contributions totaled 3.7% of total governmental fund expenditures in fiscal 2020. The town made its full required pension contribution in fiscal 2020. The largest pension plan is 61.3% funded. Seekonk made its full annual required pension contribution in fiscal 2019, which it is required to do annually. The pension plan uses a 7.5% discount, down from 7.75%, which we consider high and likely to lead to contribution volatility. In addition, the level-percent amortization will also increase costs. We view the 10-year closed amortization as a positive, but we think the plan must use aggressive assumptions to meet this schedule and maintain affordable annual assessments. The plan exceeded both our static- and minimum-funding-progress metrics in the most recent year, indicating it is making progress in addressing both current costs and accrued liabilities. We expect costs will likely increase, particularly if the plan adopts increasingly conservative assumptions. Should costs materially increase relative to current levels, we could negatively revise our view of the town's plan to address these liabilities. (For more information, see the article, titled "Pension Spotlight: Massachusetts," published Oct. 14, 2020, on RatingsDirect.) WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 6
Summary: Seekonk Town, Massachusetts; General Obligation Strong institutional framework The institutional framework score for Massachusetts municipalities is strong. Related Research • S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 • Incorporating GASB 67 And 68: Evaluating Pension/OPEB Obligations Under Standard & Poor's U.S. Local Government GO Criteria, Sept. 2, 2015 • Criteria Guidance: Assessing U.S. Public Finance Pension And Other Postemployment Obligations For GO Debt, Local Government GO Ratings, And State Ratings, Oct. 7, 2019 • 2020 Update Of Institutional Framework For U.S. Local Governments • Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020 Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 16, 2021 7
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