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Old 12-28-2017, 10:32 PM
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Mary Pat Campbell
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HAMDEN, CONNECTICUT

https://www.nhregister.com/news/arti...s-12458099.php
Quote:
Credit agencies concerned about Hamden’s pension obligations, uncertain municipal aid
Spoiler:
HAMDEN — Amid significant losses of municipal aid, the town saw a credit rating downgrade but maintained favorable affirmations from two other major agencies.

All three of the town’s rating agencies — S+P Global Ratings, Fitch Ratings and Moody’s Investors Service — cited budgetary challenges exacerbated by the state’s fiscal troubles and the town’s costly pension obligations in their reports.

“You never like to see a downgrade but holding our own with two out of three is not bad, particularly in the climate we’re in,” Mayor Curt B. Leng said, “The state saw a downgrade from all three and we’re a product of the state. Every municipality is getting looked at much closer.”

Moody’s Investor Services downgraded Hamden from a Baa1 rating to Baa2 with a negative outlook, concluding a review prompted by the state’s then ongoing budget impasse.

“The downgrade to Baa2 is largely based on the town’s high pension burden coinciding with a limited financial position that will be pressured over the near term,” Moody’s lead analyst Nicholas Lehman wrote in the report. The pressure comes from increasing pension contributions and anticipated reduced state funding.

Fitch Ratings affirmed the BBB+ rating with a stable outlook, but lead analyst Kevin Dolan wrote, “The town’s weak financial profile is pressured as a result of growing debt service, a ramp-up in required pension contributions and very weak general fund liquidity.”

S+P Global Ratings removed the town from a credit watch list and affirmed the town’s A+ long term rating on debt with a negative outlook on stable financial performance. Although the reductions are manageable, “Hamden remains increasingly vulnerable to even slight changes in revenue or expenditures,” the agency’s analyst Christina Marin said in a report.

Marin wrote, “in light of Hamden’s weak reserves, extremely high pension, other postemployment benefits and a growing internal services fund deficit Hamden has limited flexibility to respond to the state’s financial challenges.”

Hamden may be facing close to a $4 million loss of municipal aid, Leng said.. However, a little more than half of that shortfall comes from the state mandated car tax, which may be reimbursed. Passed in the initial budget, only $330,000 would have been reimbursed, he said, but legislators added a fix for municipalities that had revaluations for grand list years 2014 and 2015 resulting in a tax increase of more than four mills.

Amid the revaluation changes, property values went down and to collect the same amount of money, the state would reimburse those municipalities up to 45 mills, Leng said. Bridgeport, Torrington and Hamden fell into category and wouldn’t have been reimbursed at a reasonable rate, he said.

With the fix, close to $2.6 million would be reimbursed for Hamden, Leng said, and while there’s no reason to believe the funds won’t come through, the money is not certain because of the item’s phrasing in the budget, saying “may” as opposed to “shall” be reimbursed.

“I think it’ll get fixed when they go back into session in February, but until then, especially for rating agency purposes, it’s not here and not on our list of firmly committed money,” Leng said. “It made for the murkiest discussions we’ve had. A lot of the discussion was around ‘what ifs’ and it was tougher to be on solid ground for discussion.”

Leng said the town is working seriously on the agencies’ pension liability concern, fixing the pension with cost-of-living adjustment reductions, new pension contribution levels and the pension obligation bond.

One of the largest drivers of pension reform has been a reduction to cost-of-living adjustments. For years, the town was paying out the 3 percent maximum annual increase, but it has been negotiated with three unions and set at a new “up to 1.75 percent” maximum per year. Since the town started paying out around 2 percent several years ago, the town’s pension liability has been reduced by more than $10 million. One percent of COLA has been valued by the town’s actuaries as equaling $2.1 million of the town’s annual annual required contributions, Leng said.

As a result of implementing these fixes, there is an increase in the money the town is putting into the pension plan so that it’s solvent for years to come, Leng said, but it also reduces pension liability.

The town has less revenue coming in than expected even though officials budgeted conservatively, not anticipating much more revenue, Leng said, adding the town did better than many communities but will still be short in the millions “and that has direct impact on any municipality.”

“We’re going to look at every dollar spent,” Leng said.

The town will continue the hiring freeze for nonessential employees and spending freeze for nonessential expenses, which he enacted in August. Both will continue indefinitely and the savings in town salaries that resulted from hiring freeze and delaying the start of new hires has created $1 million in savings from the budgeted salary accounts, Leng said.

“There are going to be many items that are going to be discussed and nothing is off the table because we have to work to balance our budget.”

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