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.
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
- Healthy reserves with multiple years of surpluses
- Strong socioeconomic profile
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.
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.
All of the town’s debt is fixed rate.
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.
- 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
Hollis is a town with a population of 7,684 located in Hillsborough County in southern New Hampshire.
Debt service on the rated debt is secured by the town’s unlimited general obligation.
USE OF PROCEEDS
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.
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.
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