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Standard and Poors AAA Rating Report
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STANDARD &POOR'S
RATINGS SERVICES
McGRAW HILL FINANCIAL
RatingsDirect®
Summary:
Canton Town, Massachusetts; General
Obligation
Primary Credit Analyst:
Danielle A Messier, Boston (617) 530-8322; danielle.messler@standardandpoors.com
Secondary Contact:
Timothy J Daley, Boston (1) 617-530-8121; timothy.daley@standardandpoors.com
Table Of Contents
Rationale
Outlook
Related Criteria And Research
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Summary:
Canton Town, Massachusetts; General Obligation
Credit Profile
US$3.689 mil GO mun purp loan bnds ser 2015 dtd 03/08/2015 due 03/15/2028
Long Term Rating AAA/Stable New
Canton GO
Long Term Rating AAA/Stable Affirmed
Canton GO
Unenhanced Rating AAA(SPUR)/Stable Affirmed
Many issues are enhanced by bond insurance.
Rationale
Standard & Poor's Ratings Services assigned its 'AAA' rating and stable outlook to Canton Town, Mass.' series 2015
general obligation (GO) bonds and affirmed its 'AAA' rating, with a stable outlook, on Canton's existing GO debt.
The rating reflects our opinion of the following factors for Canton, specifically its:
• Very strong economy, featuring extremely strong property wealth and access to the broad and diverse Boston
metropolitan statistical area (MSA);
• Strong budgetary flexibility with fiscal 2014 audited available reserves at 12.4% of general fund expenditures;
• Strong budgetary performance and stable revenue profile;
• Very strong liquidity, providing very strong cash to cover debt service and expenditures;
• Strong management conditions led by "good" financial management policies under our Financial Management
Assessment (FMA) methodology;
• Very strong debt and contingent liability position, characterized by low debt service as a percent of total
governmental fund expenditures; and
• Strong Institutional Framework.
The town's full-faith-and-credit pledge secures the bonds. We understand officials intend to use series 2015 bond
proceeds to redeem roughly $2.8 million of bond anticipation notes maturing on March 27, 2015, and $800,000 of
proceeds to provide permanent financing for the projects.
Very strong economy
Canton, with a population estimate of 22,000, is a suburban, primarily residential community 15 miles south of Boston.
The town's location along Route 128 and Interstate 95, coupled with two commuter-rail train stations, provides local
residents with easy access to numerous employment centers, including downtown Boston; the Route 128 high-tech
corridor; and Providence, R.I. In our opinion, projected per capita effective buying income is a very strong 157.8% of
the national level. Norfolk County unemployment was 6% in 2013, below commonwealth and national levels, as it has
been historically.
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Summary: Canton Town, Massachusetts; General Obligation
Assessed value (AV) has increased by 4.8% in fiscal 2015 to $4 billion. Market value is, what we consider, an extremely
strong $186,800 per capita; this partially reflects Canton's strong commercial and industrial property tax base, which
accounts for 19% of AV. In addition, the tax base is very diverse with the 10 leading taxpayers accounting for about
7% of total AV.
Strong budgetary flexibility
In our opinion, budgetary flexibility remains strong with audited fiscal 2014 reserves at $10.7 million, or 12.4% of
expenditures. The fiscal 2015 budget includes the use of fund balance to finance architect feeds for an upcoming
school project, as well as supplement commonwealth funds for road repairs. Management, however, expects to end
fiscal 2015 with an operating surplus that will offset the budgeted use of reserves.
Strong budgetary performance
In our view, overall budgetary performance has been strong. Canton closed fiscal 2014 with a $1.1 million general fund
operating surplus, or about 1.3% of budget, and a $3 million total governmental funds operating surplus, or 3.2%, after
adjusting for recurring transfers in from Canton's water and sewer funds. The fiscal 2015 budget totals $79.6 million, a
4% increase over the adopted fiscal 2014 budget. Property taxes generated about 71% of fiscal 2014 general fund
revenue. Despite a deficit in the snow-and-ice budget, management is projecting fiscal 2015 will close with positive
results due to better-than-expected revenue growth and conservative budgeting practices.
Very strong liquidity
Supporting the town's finances is, what we consider, very strong liquidity with available cash of 22.1% of total
governmental fund expenditures and more than 3x debt service coverage. We believe Canton has strong access to
external liquidity because it typically issues GO debt to finance significant capital-related activities.
Strong management conditions
We view Canton's management conditions as strong with "good" financial management practices under our FMA
methodology, indicating that financial practices exist in most areas but that governance officials might not formalize or
regularly monitor all of them. Management is, what we regard as, conservative in its revenue and expenditure
assumptions, supported by historical trends, and analysis of past budget-to-actual performance. Management regularly
monitors Canton's budget performance and presents monthly reports to department heads and the town administrator.
Management also performs a three-year budget forecast that it communicates to department heads. Canton also
maintains a five-year capital improvement program that identifies funding sources, as well as a reserve and liquidity
policy that targets at least 5% of total expenditures.
Very strong debt and contingent liability profile
In our opinion, Canton's debt and contingent liability profile is very strong with debt service of 6.5% of governmental
fund expenditures and net direct debt of 30.5% of current revenue. Following this issue, Canton has about $29.4
million of overall net debt, net of self-supporting water and sewer debt paid with user charges. We believe Canton's
plan to retire 79% of principal debt over the next 10 years enhances its debt profile. Town officials plan to issue
roughly $4 million of additional debt within the next fiscal year to finance projects at the Hansen school, but we believe
this will not have a significant effect on the town's debt profile.
A long-term credit consideration is the town's pension and other postemployment benefits (OPEB) liabilities. Canton
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Summary: Canton Town, Massachusetts; General Obligation
participates in the Norfolk County Retirement System; as of Jan. 1, 2014, the most recent data available, the pension
was about 56% funded. The town pays the full annual required contribution (ARC), which was $3.1 million in fiscal
2014. Canton's OPEB liability, as of Jan. 1, 2013, was $142.8 million, assuming a 4.2% investment return; the ARC was
$12.9 million in fiscal 2014, or 15% of general fund expenditures. The actual payment in fiscal 2014 was $5.1 million,
or 40% of the ARC. Canton established an OPEB trust fund in fiscal 2012 that has a current balance of roughly $1.1
million. Officials indicate they plan to add at least $500,000 annually to the OPEB trust. The combined pension and
OPEB contribution for fiscal 2014 equaled 8.8% of expenditures. While these identified payments will be a positive
step toward reducing the OPEB liability, they are still significantly short of the ARC. Canton, however, recently
negotiated changes to health insurance benefits; town projections have this resulting in a cost savings of approximately
$400,000 annually, reducing the OPEB liability.
Strong Institutional Framework
We consider the Institutional Framework score for Massachusetts towns strong.
Outlook
The stable outlook reflects Standard & Poor's opinion of Canton's very strong economy, bolstered by the town's access
to the broad and diverse Boston MSA, and strong finances. We expect the town's tax base to remain a stable revenue
source, which should allow management to maintain its strong finances. While the OPEB ARC is significantly higher
than current payment amounts, officials have identified efforts to increase funding and decrease expenditures; we will
continue to monitor these efforts. While currently unlikely to occur, if increasing contributions to the OPEB liability
were to pressure budgetary performance and flexibility, we could lower the rating. We do not expect to change the
rating within the two-year outlook period because we expect the town to maintain consistently strong reserves and
make progress on funding long-term liabilities.
Related Criteria And Research
Related Criteria
USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013
Related Research
• S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013
• Institutional Framework Overview: Massachusetts Local Governments
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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Jones, Ellen
-rom: Murgia, James R.
Sent: Friday, February 27, 2015 4:38 PM
To: Butters, Kathy; Friel, William T.; Granatino, Jeff (granatinoj@cantonma.org); Nectow,
Barry; Mark Porter (markportercfp@gmail.com)
Cc: Jones, Ellen
Subject: Bond Rating Report
Attachments: Bond Rating report for March 2015 borrowing.pdf
Good news from Standard & Poor's. Our next round of borrowing has been assigned a rating of AAA & our
current debt's bond rating has been affirmed as AAA. Next week we will be accepting bids to borrow $3.7 million for
bonds & about $1 million for a short-term bond anticipation note. Hopefully this report from S&P will help us realize low
interest rates for this upcoming round of borrowing.
S&P's rationale for our rating considered the high per capita income & low unemployment rates. Assessed
values grew almost 5% with the commercial tax base continuing to be strong & diverse with the top ten taxpayers only
making up 7% of the total $4 billion in assessed value. S&P also liked our reserves at $10.7 million or 12.4% of budget as
that indicates budgetary flexibility.
On the horizon S&P is concerned with our unfunded pension & OPEB liabilities. Norfolk County Retirement is
only 56% funded but they do plan to be fully funded in 2032, several years before the state deadline of 2040.
As to OPEB, S&P recognizes that we're having a new actuarial study done but the one from 2013 indicated an
'WEB liability of $140 million. S&P was informed of our OPEB trust fund with a $1.1 million balance with a plan to add
,,500k annually. S&P also was made aware of plan design changes we're negotiating which would reduce our health
insurance budget & our OPEB liability.
Please let me know if you have any questions or comments concerning this report.
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