Town of Hollis’ rating upgraded by Moody’s Investors Service

Editor’s Note: This information was supplied by the town of Hollis

NEW YORK – Moody’s Investors Service has upgraded the town of Hollis’ rating to Aa2 from Aa3, affecting $7.5 million in general obligation debt. The town’s debt is secured by an unlimited tax pledge.

SUMMARY RATING RATIONALE

The Aa2 rating upgrade reflects the town’s moderately sized tax base with above average wealth levels, manageable debt burden, and a multiple year trend of improving finan­cial operations and healthy reserves.

OUTLOOK

Outlooks are usually not assigned to local government credits with this amount of debt outstanding.

WHAT COULD MAKE THE RATING GO UP

  • Continued growth in reserves
  • Significant tax base expansion

WHAT COULD MAKE THE RATING GO DOWN

  • Deterioration of reserves
  • Declines in tax base and/or socioeconomic profile
  • Increase in debt burden

STRENGTHS

  • Healthy reserves with multiple years of surpluses
  • Strong socioeconomic profile

CHALLENGES

Minor declines in tax base

ECONOMY AND TAX BASE: MODERATELY SIZED RESIDENTIAL TAX BASE

Located in Hillsborough County, Hollis benefits from its proximity to Boston (Aaa stable) and Merrimack, which provides various employment opportunities. The town’s $1.2 billion tax base has experienced a five-year average annual decline in full valuation of 2.0% (2008-2013). The town ex­pects modest growth given upcoming residential and com­mercial developments. The town’s socioeconomic profile is above national averages, with median family income report­ed at 207% of the national median. Full value per capita is a solid $158,276.

FINANCIAL OPERATIONS AND RESERVES: HEALTHY FINANCIAL POSITION FOLLOWING MULTIPLE YEARS OF SURPLUS OPERATIONS

The town’s financial position has improved following several years of operating surpluses. Expenditures have re­mained stable while revenues have increased, partially due to increased collections of town fees and redevelopment taxes which town officials estimate have totaled $1 million over the past five years. Additionally, the town has been budget­ing conservatively for tax abatements, which have not oc­curred, contributing approximately $1 million to the grow­ing fund balance over the past five years. The town’s primary revenue source is property taxes, representing 70.3% of 2013 revenues. Available operating fund balance has grown to $2.7 million, or a healthy 27.6% of revenues in 2013, from $419,000, or a slim 1.8% of revenues in 2009. Moving for­ward, the town expects to increase taxes by approximately $100,000 annual for road work and maintenance for the next few years. Town officials report a $320,000 surplus is expected for fiscal 2014.

LIQUIDITY

Hollis’ cash position at the end of fiscal 2013 was $10.4 million, or a healthy 104.7% of revenues. A large portion of the town’s cash represents taxes collected on behalf of the school district, which the town must remit in the following year. When backing out current liabilities, Hollis’ cash posi­tion remains healthy at $2.3 million.

DEBT AND PENSIONS: MODEST DEBT POSI­TION EXPECTED TO REMAIN MANAGEABLE

The town has $7.5 million of general obligation debt and a modest $7.8 million in total net direct debt, or 0.6% of fis­cal 2013 full valuation. The town may issue additional debt for a public works building in the $1-2 million range in the next couple years. Given the average 10-year amortization of principle at 69.6%, Hollis’s debt position is expected to remain manageable.

DEBT STRUCTURE

All of the town’s debt is fixed rate.

DEBT-RELATED DERIVATIVES

The town has no derivatives.

PENSIONS AND OPEB

The town participates in the New Hampshire Retirement System, a multi-employer, defined benefit retirement plan administered by the state. The town’s annual required con­tribution (ARC) for the plan was $520,870 in fiscal 2013, or 5.5% of General Fund expenditures. The town’s adjusted net pension liability, under Moody’s methodology for ad­justing reported pension data, is $19.4 million, or an above average 1.96 times General Fund revenues. Moody’s uses the adjusted net pension liability to improve comparability of reported pension liabilities. The adjustments are not in­tended to replace the town’s reported liability information, but to improve comparability with other rated entities. We determined the town’s share of liability for the plan to be in proportion to its contributions to the plan.

MANAGEMENT AND GOVERNANCE

New Hampshire cities and towns have an institutional framework score of "Aa" or strong. Cities and towns rely on property taxes which are highly predictable and can be increased annually without statutory limit, except where a local tax cap has been established. Primary expenditures are for public safety and general government services. Expen­ditures are largely predictable and cities have the ability to reduce spending.

KEY STATISTICS

  • Full value (2013): $1.2 billion
  • Full value per capita (2013): $158,276
  • Median family income (2009): 206.8% of the US
  • Available Fund balance as % of revenues (2013): 27.6%
  • 5-year dollar change in fund balance as % of reve­nues(2008-2013): 23.9%
  • Cash balance as % of revenues (2013): 104.7%
  • 5-year dollar change in cash balance as % of revenues (2008-2013): 17.7%
  • Institutional framework (NH cities and towns): Aa
  • 5-year average of operating revenues to operating ex­penditures(2009-2013): 1.05x
  • Debt to full value (2013): 0.6%
  • Debt to revenues (2013): 0.8x
  • Moody’s-adjusted net pension liability to full value (2013): 1.6%
  • Moody’s-adjusted net pension liability to revenues (2013): 1.9x

OBLIGOR PROFILE

Hollis is a town with a population of 7,684 located in Hillsborough County in southern New Hampshire.

LEGAL SECURITY

Debt service on the rated debt is secured by the town’s unlimited general obligation.

USE OF PROCEEDS

Not applicable.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was US Local Government General Obligation Debt published in January 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory dis­closures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived ex­clusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release ap­ply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.