Canton, Massachusetts · Saved source text
AAA Bond Rating March 2022
Saved text from 8 source pages. Transcription and OCR may contain errors; verify figures and wording against the original. Retrieved 2026-10-15.
Source page 1
Summary: Canton, Massachusetts; General Obligation Primary Credit Analyst: Jennifer K Garza (Mann), Dallas + 1 (214) 871 1422; jennifer.garza@spglobal.com Secondary Contact: Tyler Fitman, Boston (1) 617-530-8021; tyler.fitman@spglobal.com Table Of Contents Rating Action Stable Outlook Credit Opinion Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 1
Source page 2
Summary: Canton, Massachusetts; General Obligation (Editor's Note: The par amount of the new issue, planned use of the issuance, and some other details have changed since we first pubilshed this report. An updated version is below.) Credit Profile US$15.65 mil GO mun purp loan of 2022 bnds dtd 03/22/2022 due 03/15/2042 Long Term Rating AAA/Stable New Canton Twn GO Long Term Rating AAA/Stable Affirmed Rating Action S&P Global Ratings assigned its 'AAA' rating to the Town of Canton, Mass.' $15.65 million series 2022 general obligation (GO) municipal-purpose loan bonds and affirmed its 'AAA' rating on the town's existing GO debt. The outlook is stable. Canton's full-faith-and-credit pledge, subject to Proposition 2 1/2 limitations, secures the bonds. We rate the limited-tax GO debt equivalent to the town's general creditworthiness despite the commonwealth's levy-limit law-imposed limitation because the ad valorem tax is not derived from a measurably narrower property tax base and there are no resource fungibility limitations, supporting our view of its overall ability and willingness to pay debt service. Proceeds from the series 2022 bonds will fund various capital projects and a land acquisition. Credit overview The rating reflects our view of the town's very strong economy, supported by a wealthy property tax base and high incomes. In addition, Canton's maintenance of very strong budgetary flexibility supports our view of the town's credit quality. Strong long-term planning and historically consistent positive results lead us to expect management will make necessary budgetary adjustments to maintain balanced operations despite potential cost escalation from retirement liabilities. The town anticipates that conservative budgeting will help produce approximately break-even results in fiscal 2022, and we expect federal funding and new payment-in-lieu-of-taxes (PILOT) revenue should help Canton maintain stability in the short run. Therefore, we do not expect to change the rating within the outlook period. Under our criteria, "Ratings Above The Sovereign: Corporate And Government Ratings—Methodology And Assumptions" (Nov. 19, 2013), we rate Canton higher than the sovereign because we believe the town can maintain better credit characteristics than the nation in a stress scenario based on its predominantly locally derived revenue base and our view that pledged revenue supporting bond debt service is at limited risk of negative sovereign intervention. The rating further reflects our opinion of the town's: • Above-average wealth and income levels, with access to a broad and diverse metropolitan statistical area (MSA); WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 2
Source page 3
Summary: Canton, Massachusetts; General Obligation • Strong management, with good financial policies and practices under our Financial Management Assessment (FMA) methodology, coupled with a strong institutional framework; • Six consecutive operating surpluses, which contribute to Canton's maintenance of very strong reserves; and • Low overall debt profile with manageable debt service carrying costs but a large pension and other postemployment benefit (OPEB) obligation. Environmental, social, and governance We consider the town's socioeconomic profile to be a social capital opportunity as high incomes and population growth have helped Canton maintain its strong financial position and budgetary balance, which has supported attracting new businesses to the area. We analyzed Canton's environmental and governance risks relative to the town's economy, management, financial measures, and debt and liability profile and determined that they are in line with our view of the sector standard. The town has worked to address physical climate risks related to weather events and flooding with the town's Municipal Vulnerability Preparedness Plan. Canton has also been awarded a grant from the Municipal Vulnerability Preparedness grant program to conduct a hydrological study of the town's storm water infrastructure and flood-prone areas to come up with targeted solutions and public outreach and education programs. The town has made several changes to zoning bylaws and subdivision rules and regulations to enable and encourage low-impact development and "green" infrastructure storm water solutions. In addition, the town has adopted plans to reduce its carbon footprint including adoption of an energy reduction plan and a fuel-efficient vehicle policy. Finally, Canton is home to the Southern Sky Renewable solar facility, one of the largest solar photovoltaic facilities in Massachusetts. It was installed in 2012 and currently a minimum of 31% of the town's electrical consumption is offset by this facility. We believe this development will be key to maintaining employment in the face of energy transition. Stable Outlook Downside scenario We could lower the rating if finances were to deteriorate significantly or the town were to experience budgetary pressure due to increasing retirement benefit contributions, leading to a drawdown on reserves. Credit Opinion Moderate tax base growth, coupled with access to the deep and diverse Boston MSA The town is a suburban, primarily residential community 15 miles south of Boston. It is in Norfolk County in the Boston-Cambridge-Newton MSA, which we consider to be broad and diverse. The town's location along Route 128 and Interstate 95 and two commuter-rail train stations provide local residents with easy access to numerous employment centers, including downtown Boston; the Route 128 high-technology corridor; and Providence, R.I. Assessed value continues to grow due to a healthy real estate market and ongoing development. The town is active in its development efforts, occasionally considering special tax agreements or direct property development if the economic development committee feels it is warranted. The combined Tufts Health Plan and WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 3
Source page 4
Summary: Canton, Massachusetts; General Obligation Harvard Pilgrim Health Care organization recently announced it would acquire the currently vacant property that was the former Reebok headquarters. As part of this move, the health group will also consolidate its headquarters in Canton, which management projects could add 2,500 jobs to the town. Canton also negotiated a new 30-year PILOT agreement for the property. Beginning in fiscal 2022, the town is slated to receive a $1.6 million annual PILOT payment with 3% annual increases. In addition, a Topgolf facility will be constructed along major Interstate 95 and is projected to create 500 jobs for the area. Officials note that the COVID-19 pandemic has resulted in a slowdown in the pace of residential construction projects due to supply disruptions; however, all projects remain in motion. We anticipate the tax base will continue to grow at a moderate pace due to ongoing building permit trends. Strong FMA and near-term turnover anticipated Highlights of the town's key practices and policies include: • Conservative budget assumptions grounded in historical trend analysis and careful state-aid and local-tax-revenue tracking; • Management regularly monitors 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; • Maintenance of a five-year capital improvement program (CIP) that identifies funding sources; • A reserve target to maintain the unassigned fund balance above 15% of budgeted expenditures, which the town has adhered to; and • Canton follows the commonwealth's investment restrictions and monitors and reports investments monthly but lacks a formal debt management policy. Canton's management team has remained very stable; however, the town administrator is planning to retire starting in September 2022. We do not anticipate changes in the town's practices and policies at present. In addition, Canton has several protective measures in place to prepare for, respond to, and recover from cybersecurity threats. Conservative budget assumptions contribute to the town's positive net performance and ultimately enhancing Canton's very strong reserve position Our assessment of operating results adjusts for recurring transfers and bond-financed capital spending. Canton continued its streak of steady operating performance (at least the past six fiscal years) with net positive results in its general fund. The town's revenue profile is generally stable, with property taxes accounting for 72% of general fund revenue, followed by intergovernmental revenue at 19%, and motor vehicle and other excise taxes at 4% in fiscal 2021. The town's fiscal 2021 operating budget was adopted with conservative budget assumptions due to the uncertainty of the pandemic's effect on the budget at the time. The budget represented a 3.2% increase over the previous year and we ultimately anticipated at least break-even net results in part due to higher-than-anticipated state aid revenue receipts. However, due to positive variances for both revenues and expenditures, the town ended with a strong $5.7 million surplus during the most recent fiscal year. The fiscal 2022 budget reflects a 3.5% increase and totals $106.7 million. This budget is designed to fund contractual increases to public employees and address rising special education costs. Fiscal 2022 will be the first year the town WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 4
Source page 5
Summary: Canton, Massachusetts; General Obligation receives PILOT revenue from the Tufts Associated Health Plan/Harvard Pilgrim Health Care Organization combined group, with $1.6 million set to come in. Although the new PILOT revenue does not affect the town's Proposition 2 1/2 tax levy limit, Canton has elected to leave $1.6 million in space under the cap. We anticipate that this ability to increase property taxes by more than normal annual cap increases could provide additional flexibility. Canton was awarded $6.9 million in American Rescue Plan Act funds and has received $1.2 million of these funds. The town has yet to formally decide how these funds will be spent but has preliminarily targeted the following spending categories: public health, negative economic impact, services to disproportionately impacted communities, infrastructure, and revenue replacement. The town has consistently maintained very strong reserves over 15% of expenditures for at least the past six audited fiscal years. Management anticipates the unassigned fund balance will remain in excess of its 15% policy limit at the end of fiscal 2022. When general fund revenues outpace expenditures, the town typically takes the portion of undesignated reserves and transfers it to dedicated reserves or considers one-time expense uses for the funds. We understand officials do not currently plan to spend down the fund balance in the near future. Therefore, we expect flexibility will remain very strong. Management intends to maintain the levy under the limit unless extraordinary circumstances require raising it. Officials have indicated that it might use reserves in excess of the reserve policy to establish a capital stabilization fund in the near term. We believe the town has strong access to external liquidity, as evidenced by regular GO debt issuances. Canton does not have any variable-rate or direct-purchase debt. Most of Canton's investments are in certificates of deposit, U.S. treasury obligations, and government agencies. Low overall net debt burden, coupled with rapid amortization and low debt service carrying costs The town will have approximately $48.3 million in net direct debt, approximately $14 million of which we consider adequately covered by enterprise rates and charges based on historical coverage ratios. The town's five-year CIP includes approximately $16 million of debt-financed capital projects. The additional expected issuance over the next two years is incorporated into our view of the town's debt. Therefore, we do not expect additional issuance will have a material effect on our view of Canton's debt profile. Pension and other postemployment benefit obligations In our opinion, a credit weakness is Canton's large pension and OPEB obligation. We believe the low pension funded ratio, permissive assumptions, and large OPEB liability together result in a liability profile likely to pressure the operating budget, particularly if assumptions are not met. While the use of an actuarially determined contribution (ADC) is a positive, we believe some of the assumptions used to build the pension ADC reflect what we view as slightly weak assumptions and methodologies, which we believe increases the risk of unexpected contribution escalations. The town funds OPEB liabilities on a pay-as-you-go basis, although it is prefunding the obligation. Canton participated in the following pension and OPEB plans as of June 30, 2021: • Norfolk County Retirement System (NCRS); a cost-sharing, multiple-employer, defined-benefit pension plan, which WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 5
Source page 6
Summary: Canton, Massachusetts; General Obligation
is 70% funded, with the town's net pension liability at $38.5 million.
• Town of Canton OPEB plan; a single-employer, defined-benefit health care plan that provides medical, dental, and
life insurance to current and future retirees and their dependents and beneficiaries. The OPEB plan is funded on a
pay-as-you-go basis, and at fiscal-year-end had a funded ratio of 9% and a net OPEB liability of $86.9 million.
The town made its full required pension contribution in 2021. We believe the discount rate for the NCRS pension plan
is high at 7.75%, along with permissible mortality tables, and optimistic payroll growth assumptions. The system made
progress in both our static and minimum funding progress calculations, indicating it addressed both the current costs
and unfunded liabilities. The system's closed, nine-year amortization schedule is a positive, leading to full funding
ahead of the state's 2040 pension funding deadline. However, we believe that to meet this timeline, the system
maintains assumptions we view as more likely to lead to contribution volatility.
Canton also provides OPEB to retirees. It has set up an OPEB trust to prefund the liability, which we view as positive.
The OPEB trust has a $9 million balance and the town plans to annually increase the transfer to the OPEB trust fund
by $100,000 per year until the transfer amounts to $1.5 million (projected in 2027). In addition, when the NCRS plan is
fully funded in 2030, the town will shift those pension assessment savings to OPEB funding. Although we recognize
that management is attempting to mitigate the risks associated with the large pension and OPEB obligation and that
costs are currently manageable, we believe unfunded liabilities will likely remain a challenge since costs continue to
grow and pressure the long-term budget.
Strong institutional framework
The institutional framework score for Massachusetts municipalities is strong.
Canton, Mass.--Key Credit Metrics
Most recent Historical information
2021 2020 2019
Very strong economy
Projected per capita EBI % of U.S. 153
Market value per capita ($) 259,206
Population 23,629 23,530 23,258
County unemployment rate(%) 8.3
Market value ($000) 6,124,774 5,595,001 5,236,155
Ten largest taxpayers % of taxable value 8.2
Strong budgetary performance
Operating fund result % of expenditures 5.1 1.9 0.4
Total governmental fund result % of expenditures 4.4 2.0 1.0
Very strong budgetary flexibility
Available reserves % of operating expenditures 23.9 19.3 18.5
Total available reserves ($000) 26,952 21,041 19,168
Very strong liquidity
Total government cash % of governmental fund expenditures 32 23 27
Total government cash % of governmental fund debt service 738 574 655
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 6Source page 7
Summary: Canton, Massachusetts; General Obligation
Canton, Mass.--Key Credit Metrics (cont.)
Most recent Historical information
2021 2020 2019
Strong management
Financial Management Assessment Good
Very strong debt & long-term liabilities
Debt service % of governmental fund expenditures 4.3 4.0 4.1
Net direct debt % of governmental fund revenue 36
Overall net debt % of market value 1.0
Direct debt 10-year amortization (%) 78
Required pension contribution % of governmental fund expenditures 4.8
OPEB actual contribution % of governmental fund expenditures 4.0
Strong institutional framework
EBI--Effective buying income. OPEB--Other postemployment benefits. Data points and ratios may reflect analytical adjustments.
Related Research
Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020
Ratings Detail (As Of March 1, 2022)
Canton Twn GO
Long Term Rating AAA/Stable Affirmed
Canton Twn GO
Long Term Rating AAA/Stable Affirmed
Canton Twn GO
Long Term Rating AAA/Stable Affirmed
Canton Twn GO
Long Term Rating AAA/Stable Affirmed
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.capitaliq.com. All ratings affected by this rating
action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 7Source page 8
Copyright © 2022 by Standard & Poor’s Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating- related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 1, 2022 8