Summary: Littleton, Massachusetts; General Obligation Primary Credit Analyst: Apple Lo, Boston (1) 617-530-8316; [email protected] Secondary Contact: Linda Yip, New York (1) 212-438-2036; [email protected] Table Of Contents Rationale Outlook Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 27, 2012 1 1040828 | 300171391 Summary: Littleton, Massachusetts; General Obligation Credit Profile US$5.215 mil GO bnds ser 2012 due 11/29/2032 Long Term Rating AA/Stable New Littleton GO Unenhanced Rating AA(SPUR)/Stable Affirmed Rationale Standard & Poor's Ratings Services assigned its 'AA' long-term rating to Littleton, Mass.' general obligation (GO) bonds series 2012. A the same time, Standard & Poor's affirmed its 'AA' long-term rating and underlying rating (SPUR) on the town's parity GO debt outstanding. The outlook is stable. The rating reflects what we view as the town's: • Favorable location at the intersection of Interstate 495 and Massachusetts Route 2, with direct commuter rail service to downtown Boston; • Very strong income and extremely strong property wealth levels; • Consistently strong financial reserve position, coupled with good financial management practices and policies; and • Low-to-moderate overall debt burden, net of school building aid and self-supported enterprise debt. The above credit strengths are partially offset by the town's sizable contributions to pension and other postemployment benefits (OPEB), as well as unfunded OPEB liability. The town's full faith and credit pledge secures the bonds. We understand that officials plan to use bond proceeds to refund a portion of debt to achieve present value savings. Littleton, with a 2010 population of about 9,700, is located in Middlesex County at the intersection of Interstate 495 and Route 2, about 26 miles northwest of Boston. The town's location at the intersection of I-495 and Route 2, with access to the Massachusetts Turnpike, the Route 128 high-tech corridor, and downtown Boston (AA+/Stable), has made it attractive to both commuters and commercial businesses. Littleton also has a modest local employment base; the largest employer, IBM Corp. (AA-/Stable/A-1+), consolidated its Massachusetts operations (primarily software engineering) into a single site within the town. IBM employs approximately 2,200 at its Littleton site. The town's unemployment rate has historically trended, and continues to be, below both commonwealth and national averages; in August 2012, unemployment was just 4.9%. The town's total assessed valuation (AV) increased 2.3% to $1.49 billion for fiscal 2011 after three consecutive years of decline. AV remained flat in fiscal 2012 but declined by 1.4% in fiscal 2013 after revaluation to $1.47 billion or what we consider an extremely strong $162,861 per capita. Littleton income levels are very strong, in our view, as median household effective buying income is 162% of national level. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 27, 2012 2 1040828 | 300171391 Summary: Littleton, Massachusetts; General Obligation We view Littleton's financial position as strong as the town historically maintains available fund balance above 8% of expenditures. For fiscal 2013, management adopted a balanced budget and plans to use $689,000 of its fund balance for one-time capital expenditures. For fiscal 2012, unaudited results showed a general fund operating surplus, increasing the total fund balance by about $2.0 million. The town's fiscal 2011 general fund, which under Governmental Accounting Standards Board (GASB) 54 included stabilization funds, increased $3 million primarily due to conservative budgeting and policies restricting 10% of the new revenues not to be appropriated to the operating budget. Property taxes remain the town's primary revenue source, accounting for 71% of general fund revenues followed by state aid receipts at 12%. Standard & Poor's revised Littleton's management practices to "strong" from "good" under its Financial Management Assessment (FMA) methodology. A strong FMA indicates that practices are strong, well embedded, and likely sustainable. The revision was related to management's consistent adherence to its formal policies and implementation of a detailed capital improvement plan. Management uses historical data, the current budget, and five years of operating revenue and expenditure and capital expenditure projections when compiling its budget. Management also has a goal of maintaining at least 2.5% of expenditures in its undesignated fund balance under GASB 54. Littleton has a formal long-term financial plan, with projections of revenues and expenditures through 2018. Management adopted an investment policy mirroring the state's guidelines and reports earnings to management on a quarterly basis. Finally, the town maintains a debt management policy stating that debt service for nondedicated revenue-supported debt (debt that is neither self-supporting nor excluded from Proposition 2 1/2 levy limits) be no greater than 10% of total budget. Net of state building aid and self-supported enterprise debt, the town's overall net debt burden is low as a percent of market value (2.0%), but moderate on a per capita basis ($2,906). Carrying charges have been moderate, averaging 9.6% of governmental expenditures in the past three fiscal years. The moderate carrying charge is driven by above-average debt amortization, with 77% of principal due to be retired within 10 year and all by 2023. Management does not have plans to issue additional bonds in the next two years. Littleton participates in the Middlesex Retirement System, which is currently funded at 47%. According to the system's latest actuarial report published in 2010, the town's unfunded pension liability is $16.3 million. Littleton also contributes to OPEB in the form of health and life insurance on the pay-as-you-go basis. The unfunded OPEB liability is approximately $33 million. Together, the town's actual contribution to pension and OPEB in fiscal 2011 was $1.8 million and $3.9 million, respectively, or about 13% of total governmental expenditures. Also in fiscal 2011, the town contributed $900,000 to begin prefunding the OPEB liability, in addition to paying its pay-as-you-go OPEB costs. Management built in a 10% inflator to pay-as-you-go and unfunded OPEB contribution. Outlook The stable outlook reflects our expectation that Littleton will continue to maintain consistently strong reserve levels. Should the town's financial reserve position deteriorate significantly, we could lower the rating. If, on the other hand, the town continues to add to its financial reserves, and address its unfunded OPEB liabilities, we could raise the rating. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 27, 2012 3 1040828 | 300171391 Summary: Littleton, Massachusetts; General Obligation Related Criteria And Research USPF Criteria: GO Debt, Oct. 12, 2006 Ratings Detail (As Of November 27, 2012) Littleton GO Long Term Rating AA/Stable Affirmed Littleton GO Unenhanced Rating AA(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 27, 2012 4 1040828 | 300171391 Copyright © 2012 by Standard & Poor's Financial Services LLC. 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