MOODY'S ASSIGNS MIG 1 RATING TO THE TOWN OF NORTH READING'S (MA) $13.2 MILLION BOND ANTICIPATION NOTES
AFFIRMS A1 UNDERLYING RATING AFFECTING $30 MILLION IN LONG-TERM GENERAL OBLIGATION DEBT
North Reading (Town of) MA
Municipality
Massachusetts
Moody's Rating
Issue Rating
Bond Anticipation Notes (Original) MIG 1
Sale Amount $13,171,000
Expected Sale Date 03/14/06
Rating Description Bond Anticipation Notes
NEW YORK, March 10, 2006 -- Moody's Investors Service has assigned a MIG
1 rating to the Town of North Reading's $13.2 million General Obligation Bond Anticipation Notes (dated March 23, 2006 and payable September 22, 2006). Concurrently, Moody's has affirmed the A1 rating on the town's $30.0 million in long-term general obligation bonds. The notes will finance construction of a police station, improvements to the Batchelder School, and equipment purchases. Approximately $12.0 million of the notes are secured by the town's general obligation, unlimited tax pledge, as debt service was voted exempt from the levy limitations of Proposition 2 1/2. The remaining $1.3 million of notes are secured by a general obligation limited tax pledge. The MIG 1 rating reflects the town's demonstrated market access, as well as underlying credit factors.
Affirmation of the A1 rating reflects the town's diminished, but effectively stabilized financial position, with continuing expenditure pressures related to pension and health care expenses, and expiring union contracts. The rating also considers the town's sizeable tax base with healthy annual growth, above average wealth levels, and manageable debt burdens.
DEMONSTRATED MARKET ACCESS
North Reading has demonstrated satisfactory access to the capital markets, having received eight bids on its most recent sale dated September 14, 2005, four bids on its June 9, 2005 sale, and six bids on its note June 2004 note sale. All bids were received from major regional and national financial institutions. Moody's believes that given this history, the town will be able to refund its notes at their September
2006 maturity.
FINANCIAL OPERATIONS EXPECTED TO STABILIZE FOLLOWING DECLINES IN RESERVE LEVELS
Moody's believes that North Reading's financial position has begun to stabilize, based on the fiscal 2005 audit, and preliminary fiscal 2006 figures that indicate reserves will remain level, if not improve, over the near term. Operations in fiscal 2004 produced a deficit of $1.0 million, reducing the total general fund balance to a narrow $1.7 million (4.5% of revenues; unreserved $1.3 million 3.6% of revenues) from a peak of $3.2 million (9.2% of
revenues) in fiscal 2002. However, during this same timeframe, the stabilization fund increased to $1.5 million from $696,000. This resulted in available reserves (unreserved fund balance and stabilization fund balance) of $2.8 million, a satisfactory 7.6% of revenues in fiscal 2004
Due to a $470,000 snow and ice deficit that was deferred until fiscal 2006, the fiscal 2005 general fund balance effectively remained stable at $1.6 million (4.1% of revenues) while the unreserved fund balance decreased to $1.1 million. The stabilization fund was reduced to $1.2 million in fiscal 2005 resulting in available reserves of $2.3 million, or a more moderate 5.7% of revenues.
At year-end fiscal 2006, the total fund balance is expected to remain at or above the year-end 2005 level, while the unreserved fund balance is expected to increase to at least $1.6 million. The stabilization fund is expected to improve to the town's targeted level of $1.5 million due to the October 2005 $300,000 free cash transfer to this fund. At these levels, the fund balance remains below the town's goal of $2.0 million (approximately 4.9% of revenues), and well below the 8.6% Commonwealth median for similar rated municipalities. The approved fiscal 2006 budget includes expenditure increases of $2.2 million (5.5% from the fiscal
2005 budget) and is balanced by the maximum 2 1/2% increase in basic property tax levy, new growth revenue and increased tax levy revenue from excluded debt. Year-to-date fiscal 2006, local tax receipts are once again above budgetary estimates, and expenses continue to be tightly controlled. This leads the new management team to believe free cash will approximate $1.0 million-a significant improvement from 2004 when free cash was a negative $15,553. Additionally in fiscal 2006, the town expects to receive a one-time $600,000 receipt from the expired North East Solid Waste Consortium (NESWC) contract.
The fiscal 2007 budget is in its final stages and is conservatively balanced without the use of fund balance or stabilization fund.
Management indicates fixed costs for pension and health insurance, and increased energy costs have been sufficiently absorbed. The town anticipates budgetary pressure from unsettled educational employee contracts and the June 2006 expiration of municipal contracts. Officials expect to ask voters for a $1.2 million operating override to address this additional expense. Favorably, the town has a strong history of voter approved operating overrides and debt exclusions. Moving forward, management is exploring alternative revenues to augment local receipts.
Moody's anticipates that balancing future budgets will provide a challenge considering increases related to pensions, health insurance, and salaries. At this time, we believe the town's financial operations have stabilized, and will experience slight near-term improvement.
However, Moody's believes reserves remain below similarly rated credits, and we expect the town to augment the fund balance to levels more in line with A1 rated credits to maintain its current rating level.
HEALTHY TAX BASE GROWTH RECORDED IN COMMUNITY WITH ABOVE-AVERAGE WEALTH LEVELS
Moody's anticipates that the town's $2.3 billion tax base will continue to grow at a healthy pace in the coming years, given a good supply of available land and continued strong regional demand for new residential and commercial development. Located approximately 16 miles from Boston (rated Aa1/stable outlook), North Reading has seen solid growth in taxable values since 2000, averaging 12.6% annually primarily to new residential construction and significant market value appreciation. Town officials report that growth is expected to continue as several new developments are proposed, including redevelopment of an 86-acre parcel, formerly the site of a state hospital, for mixed-use including residential and commercial uses. Upon near-term completion this site is expected to generate an additional $521,900 in additional revenue
annually. Additionally, Teradyne, the town's largest taxpayer and employer is abandoning its headquarters in the City of Boston and relocating 900 employees to the town, requiring additions to the current facility. North Reading's income levels exceed both state and national medians, and the strong $166,985 (177% of Massachusetts) equalized value per capita reflects healthy tax base diversity and quality.
FAVORABLE DEBT POSITION WITH LIMITED SHORT-TERM BORROWING PLANS
Moody's expects the town's modest 1.9% overall debt burden will remain manageable given satisfactory amortization of principal (70.9% in 10
years) and limited immediate borrowing plans. The town has $23 million in authorized but unissued debt, the bulk of which is for renovations to the middle and high schools to provide additional capacity and updated systems. Timing and funding have not been determined as the town is evaluating the necessity of these projects.
KEY STATISTICS
2000 Population: 13,837
2005 Equalized Valuation: $2.33 billion
Equalized Value per capita: $166,985 (177% of Massachusetts)
Average Annual Growth, Equalized Value (2000-2006): 12.6%
Median family income as % of Massachusetts (2000 census): 140.0%
Per capita income as % of Massachusetts (2000 census): 119.1%
Overall debt burden: 1.9%
Payout of principal (10 years): 70.9%
Fiscal 2005 General Fund balance: $1.6 million (4.1% of General Fund
revenues)
Fiscal 2005 Unreserved General Fund balance: $1.1 million (2.9% of General fund revenues)
Fiscal 2005 Stabilization Fund: $1.2 million (additional 3% of General Fund
revenues)
Outstanding long-term general obligation bonds: $30.0 million
ANALYSTS:
Sarrah Angelos, Analyst, Public Finance Group, Moody's Investors Service Susan Freiner, Backup Analyst, Public Finance Group, Moody's Investors Service
Edith Behr, Senior Credit Officer, Public Finance Group, Moody's Investors Service
CONTACTS:
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Copyright 2006, Moody's Investors Service, Inc. and/or its licensors and
affiliates including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved.
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