Canton, Massachusetts · Saved source text

AAA Bond Rating February 2017

Budgets & Finance · Record year 2017 · Record 1f5e027dcec540e3fb

Saved text from 6 source pages. Transcription and OCR may contain errors; verify figures and wording against the original. Retrieved 2026-10-15.

Summary:
Canton Town, Massachusetts; General
Obligation
Primary Credit Analyst:
Steven E Waldeck, Boston (1) 617-530-8128; steven.waldeck@spglobal.com

Secondary Contact:
Victor M Medeiros, Boston (1) 617-530-8305; victor.medeiros@spglobal.com


Table Of Contents

Rationale

Outlook




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Summary:
Canton Town, Massachusetts; General Obligation
Credit Profile
US$8.065 mil GO mun purp loan bnds ser 2017 dtd 03/16/2017 due 06/15/2037
  Long Term Rating                                      AAA/Stable                          New
US$2.7 mil st qual go rfdg bnds ser 2017 dtd 03/20/2017 due 04/05/2037
  Long Term Rating                                      AAA/Stable                          New
Canton GO
  Long Term Rating                                      AAA/Stable                          Affirmed



Rationale
S&P Global Ratings assigned its 'AAA' rating and stable outlook to Canton Town, Mass.' series 2017 general obligation
(GO) municipal-purpose loan bonds, and to the town's series 2017 GO refunding bonds.

We also affirmed our 'AAA' rating, with a stable outlook, on the town's existing GO debt.

We rate Canton higher than the sovereign because we believe the town can maintain better credit characteristics than
the U.S. in a stress scenario, based on its predominantly, locally derived revenue base, and our view that pledged
revenue supporting debt service on the bonds is at limited risk of negative sovereign intervention. In 2016, local
property taxes generated 75% of revenue, demonstrating the town's lack of dependence on central government
revenue.

Officials plan to use bond proceeds to refinance current outstanding bond anticipation notes (BANs), which mature on
March 24, 2017, and to refund an outstanding series 2009 municipal purpose loan, as well as to fund various capital
projects throughout the town. The town's full faith and credit pledge, subject to limitations of Proposition 2 1/2, secure
the bonds. Despite limitations imposed by the commonwealth's levy limit law, we did not make a rating distinction for
the limited-tax GO pledge due to the town's flexibility under the levy limit. We understand the town's voters excluded
Hansen Elementary School's portion of the bonds from the primary levy limit of Proposition 2 1/2.

The rating reflects our opinion of the town's:

• Very strong economy, with access to a broad and diverse metropolitan statistical area (MSA);
• Strong management, with "good" financial policies and practices under our Financial Management Assessment
  methodology;
• Strong budgetary performance, with operating surpluses in the general fund and at the total governmental fund level
  in fiscal 2016;
• Very strong budgetary flexibility, with an available fund balance in fiscal 2016 of 17% of operating expenditures;
• Very strong liquidity, with total government available cash at 28.6% of total governmental fund expenditures and
  5.7x governmental debt service, and access to external liquidity that we consider strong;
• Very strong debt and contingent liability position, with debt service carrying charges at 5.1% of expenditures and




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Summary: Canton Town, Massachusetts; General Obligation


  net direct debt that is 28.7% of total governmental fund revenue, as well as low overall net debt at less than 3% of
  market value and rapid amortization, with 78.6% of debt scheduled to be retired in 10 years, but significant
  medium-term debt plans; and
• Strong institutional framework score.

Very strong economy
We consider Canton's economy very strong. The town, with an estimated population of 22,422, is located in Norfolk
County in the Boston-Cambridge-Newton MSA, which we consider to be broad and diverse. The town has a projected
per capita effective buying income of 146% of the national level and per capita market value of $200,625. Overall, the
town's market value grew by 4.1% over the past year to $4.5 billion in 2017. The county unemployment rate was 4.3%
in 2015.

Canton is a suburban, primarily residential community located 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.

Assessed value (AV) increased 10% from fiscals 2015 to 2017, an increase that was mostly attributable to residential
properties. An assisted living facility has recently been completed and added $25 million to the AV. A new 138-room
hotel including a 150 seat restaurant should begin construction in the summer and would add $8 million to the AV, as
well as hotel and meals taxes.

Reebok recently announced its plan to relocate to Boston. Reebok is the town's largest employer and largest real estate
taxpayer. Reebok has been receiving a 49% property tax break over the past 18 years, which will remain in place for
the next two years. Due to this tax break, Reebok's real estate is assessed at $44 million, which we believe is below
market. This represents 1.6% of the town's total tax levy. Reebok will continue to pay taxes until the building is sold.

The tax base is diverse with the 10 leading taxpayers accounting for 7.7% of AV.

Strong management
We view the town's management as strong, with "good" financial policies and practices under our Financial
Management Assessment methodology, indicating financial practices exist in most areas, but that governance officials
might not formalize or monitor all of them on a regular basis.

In developing the budget, the town uses conservative assumptions grounded in a historical trend analysis and careful
tracking of state aid and local tax revenues. Management regularly monitors Canton's budgetary performance and
presents monthly reports to department heads and the town administrator. Management also performs a five-year
budget forecast and communicates the results to department heads. Canton maintains a five-year capital improvement
program that identifies funding sources, as well as a reserve target to keep unassigned fund balance above 15% of
budgeted expenditures. The town follows state investment policy while monitoring and reporting of investments is
done monthly. The town does not have a formal debt policy.

Strong budgetary performance
Canton's budgetary performance is strong in our opinion. The town had operating surpluses of 3.6% of expenditures in
the general fund and of 1.9% across all governmental funds in fiscal 2016.




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Summary: Canton Town, Massachusetts; General Obligation


The surplus is a result of revenues exceeding budgeted numbers. Auto excise taxes came in $1.2 million ahead of
budget, property taxes came in higher at $1.1 million, and permit revenue exceeded the budget by $200,000.

For fiscal 2017, Canton is expecting an operating surplus due to property tax new growth being higher than budgeted.
The town used about $500,000 of cash reserves for capital projects but expects to replenish these funds due to strong
budgetary performance. Overall, management expects an increase in reserves. Fiscal 2017's revenues have been
estimated to be about 5% more than what was budgeted for fiscal 2016.

Very strong budgetary flexibility
Canton's budgetary flexibility is very strong, in our view, with an available fund balance in fiscal 2016 of 17% of
operating expenditures, or $14.8 million. Management has no plans to spend fund balance down at present. We expect
the fund balance to remain at least very strong, and in line with the town's target for the unassigned fund balance at
15% of expenditures.

Very strong liquidity
In our opinion, Canton's liquidity is very strong, with total government available cash at 28.6% of total governmental
fund expenditures and 5.7x governmental debt service in 2016. In our view, the town has strong access to external
liquidity if necessary.

The town is a frequent issuer of GO debt. It confirmed it does not currently have any contingent liquidity risk from
financial instruments, with payment provisions that change on the occurrence of certain events. We expect the
township's liquidity profile to remain very strong.

Very strong debt and contingent liability profile
In our view, Canton's debt and contingent liability profile is very strong. Total governmental fund debt service is 5.1%
of total governmental fund expenditures, and net direct debt is 28.7% of total governmental fund revenue. Overall net
debt is low at 0.7% of market value, and approximately 78.6% of the direct debt is scheduled to be repaid within 10
years, which are in our view positive credit factors. Negatively affecting our view of the town's debt profile is its
significant medium-term debt plans.

The town's total direct debt is $56 million. The town is expecting to issue an additional $10.5 million in debt over the
next two to three years to finance various capital improvement projects

Canton's combined required pension and actual other postemployment benefits (OPEB) contributions totaled 7.9% of
total governmental fund expenditures in 2016. Of that amount, 4% represented required contributions to pension
obligations, and 3.9% represented OPEB payments. The town made its full annual required pension contribution in
2016.

The town contributes to the Norfolk County Retirement System; which is a cost-sharing, multi-employer,
defined-benefit pension plan. It contributed 100% of the annual required contribution during the previous three fiscal
years. Using updated reporting standards in accordance with Governmental Accounting Standards Board Statement
Nos. 67 and 68, the town's share of the unfunded liability was about $41.5 million with 58.5% funded as of fiscal 2015,
based on an assumed rate of return of 8%. Due to the low funded ratio, we believe contributions will continue to rise
over the next few fiscal years.



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Summary: Canton Town, Massachusetts; General Obligation


Canton's OPEB liability was $89.6 million, as of July 1, 2014; the annual required contribution was $5 million in fiscal
2016, or 6% of general fund expenditures. The actual payment in fiscal 2016 was $3.8 million. Canton established an
OPEB trust fund in fiscal 2012 that has a current balance of roughly $2.8 million. Officials indicate they have budgeted
to add at least $800,000 annually to the OPEB trust in fiscal 2018.

Strong institutional framework
The institutional framework score for Massachusetts municipalities is strong.



Outlook
The stable outlook reflects S&P Global Ratings' 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 as a stable
revenue source, which should allow management to maintain its strong finances. 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. While unlikely to occur, if finances were to deteriorate significantly or
experience budgetary pressures due to low pension funding levels, leading to a drawdown on reserves, we could lower
the rating.

• S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013
• Incorporating GASB 67 And 68: Evaluating Pension/OPEB Obligations Under Standard & Poor's U.S. Local
  Government GO Criteria, Sept. 2, 2015

 Ratings Detail (As Of February 17, 2017)

 Canton GO

  Unenhanced Rating                                     AAA(SPUR)/Stable                     Affirmed
 Many issues are enhanced by bond insurance.



Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria.
Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is
available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can
be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box
located in the left column.




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