Chelmsford Massachusetts Standard & Poors Credit Ratings Report 2013

Summary:

Chelmsford, Massachusetts; GeneralObligation

Primary Credit Analyst:

Andrew R Teras, Boston (1) 617-530-8315; [email protected]

Secondary Contact:

Victor M Medeiros, Boston (1) 617-530-8305; [email protected]

Table Of Contents

Rationale

Outlook

Related Criteria And Research

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 1, 2013 1

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Summary:

Chelmsford, Massachusetts; General Obligation

Credit Profile

US$5.292 mil GO mun purp loan bnds ser 2013 dtd 02/01/2013 due 04/15/2024

Long Term Rating AA/Stable New

Rationale

Standard & Poor's Ratings Services assigned its 'AA' long-terms rating to Chelmsford, Mass.' general obligation (GO)

municipal purpose loan of 2013 bonds. At the same time, we affirmed the 'AA' long-term rating and underlying rating

(SPUR) rating on the town's existing GO debt.

The rating factors include the town's:

• Participation in the Boston metropolitan area economy, coupled with above-average wealth and income indicators

and low unemployment relative to commonwealth and national averages;

• Recent record of favorable financial performance and maintenance of strong reserves;

• Strong financial management practices; and

• Low debt burden with rapid principal amortization.

Somewhat offsetting the above factors are the town's sizable pension and other postemployment benefit (OPEB)

liabilities that, despite recent efforts to address these costs, could pressure the budget if no further action is taken.

Officials plan to use 2013 bond proceeds to finance portions of the town's fiscal 2013 capital program and to advance

refund the series 2004 GO bonds. The refunding portion of the issuance will be exempt from the levy limitations of

Proposition 2 1/2. The new-money portion will not be exempt.

Chelmsford, with an estimated population of 34,000, borders Lowell, about 24 miles north of Boston. Interstate 495

and various state routes serve the town, making it a prime area for many commuters employed in eastern

Massachusetts and southern New Hampshire. Although Chelmsford is primarily residential, the town does maintain a

commercial and industrial employment base. Leading private employers include United Parcel Service of America Inc.

(1,510 employees), Kronos (1,160), Nature's Jewelry/Potpourri Group (500), Comcast (500), and Mercury Computer

(440). Unemployment has been consistently below commonwealth and national rates and was estimated at 5.6%

(seasonally unadjusted) for December 2012. Median household and per capita effective buying income are strong at

151% and 142%, respectively, of the national levels.

Following several years of strong assessed valuation (AV) growth, the real estate market slump and decreasing home

prices contributed to a 16.5% decrease in the town's AV since fiscal 2007. However, the 2013 value of $4.5 billion is a

drop of less than 1% from 2012, indicating signs of stabilization. Furthermore, value per capita remains strong at

$130,000. The tax base is diverse, with the 10 leading taxpayers accounting for less than 4% of total AV.

Chelmsford continues to achieve a favorable operating performance and growth in reserves. The town reported a net


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operating surplus of $3 million (2.6% of budget) in fiscal 2012, the fourth surplus in the past five audited years.

However, this does include the receipt of one-time revenues that were not budgeted, including $325,000 of Federal

Emergency Management Agency reimbursements and $270,000 from a one-time property sale. At fiscal year-end,

available fund balance (committed, assigned, and unassigned) was $13.1 million, or 11.3% of expenditures, a level we

consider strong and above the town's policy target range of 5% to 10%. The town's committed fund balance includes

its stabilization reserves, totaling $7.7 million. General fund liquidity is sufficient, with the $15.5 million of cash and

investments reported on the general fund balance sheet equal to nearly 50 days' expenses.

The fiscal 2013 budget (including sewer enterprises) of $111.6 million is a 3.2% increase over the adjusted 2012 budget

(reflecting adjustments made at the October 2012 town meeting) and includes a tax levy increase within the limitations

of proposition 2 ½. The town has an unused levy capacity is $1.1 million and there is no use of reserves to balance the

budget. Property taxes are the main source of revenue, comprising about 75% of 2013 budget operating revenues.

Officials report favorable budget-to-actual variances as of March 2013 and expect to end the year with another surplus.

Standard & Poor's considers Chelmsford's financial management practices "strong" under its Financial Management

Assessment methodology, indicating financial practices are well-embedded and likely sustainable. Management

practices include multiyear budget forecasting, monthly reporting of revenue and expenditure performance to the town

manager and board of selectmen, and formal debt management and reserve policies.

Net of debt supported by sewer betterment revenues, the overall direct debt burden is low, in our view, at $2,000 per

capita and 1.6% of market value. We consider amortization of debt rapid as the town projects 76% of principal will be

retired over 10 years, following the issuance of the 2013 bonds. Roughly one-third of the town's debt is exempt from

the levy limitations of proposition 2 ½. Debt service carrying charges are moderate, having averaged about 10% of

noncapital outlay governmental expenditures over the past five audited fiscal years. We expect these charges to

remain moderate after the upcoming issuance. Further, just over one-third of the town's GO debt is supported by

sewer betterment revenues, mitigating the need to cover a significant portion of debt service with property taxes.

Chelmsford recently completed a significant expansion of its sewer system and a new fire station and has no major

capital needs for the next five years. However, we understand the town is considering an $18 million bond issue to

finance an energy savings program and an additional $3 million of debt for general capital improvements. Given the

town's rapid principal amortization and manageable annual debt service costs relative to its budget, we do not expect

these issuances to materially increase the town's debt burden.

The town participates in the contributory retirement system of Middlesex County and makes 100% of the annual

required contribution. Chelmsford subsidizes retiree health care benefits and contributes to its OPEB liability on a

pay-as-you-go basis. We understand that, in conjunction with labor agreements, the town has made modifications to

health benefits that management reports has provided annual operating savings and expects will result in a reduced

OPEB liability when the next actuarial valuation is completed this summer. In addition, the town has set up an OPEB

trust fund, which we understand has a current balance of $1.3 million. The most recent estimate of the town's

combined unfunded pension and OPEB liabilities is a sizable $238 million, equating to 5.3% of property valuation and

$6,900 per capita.


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Summary: Chelmsford, Massachusetts; General Obligation

Outlook

The outlook is stable. The rating could be raised if there is a continuation of operating surpluses, a large increase in

reserves, a return to tax base growth, and a significant reduction in the town's long-term liabilities. The rating could be

lowered if the town's financial position deteriorates or if long-term liabilities continue to grow to the point of straining

the annual operating budget. However, we believe the rating will remain stable in the next two years as we expect the

town to maintain reserves at or near the current level while pension and OPEB liabilities remain sizable, yet

manageable, within the constraints of the operating budget.

Related Criteria And Research

USPF Criteria: GO Debt, Oct. 12, 2006

Ratings Detail (As Of April 1, 2013)

Chelmsford Twn GO

Long Term Rating AA/Stable Affirmed

Chelmsford Twn GO

Unenhanced Rating AA(SPUR)/Stable Affirmed

Chelmsford Twn GO (CIFG)

Unenhanced Rating AA(SPUR)/Stable Affirmed

Many issues are enhanced by bond insurance.

Complete ratings information is available to subscribers of RatingsDirect 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.


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Summary: Chelmsford, Massachusetts; General Obligation

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Chelmsford Massachusetts Standard & Poors Credit Ratings Report 2013

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