Canton, Massachusetts · Saved source text

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Summary:
Canton, Massachusetts; General
Obligation; Note
Primary Credit Analyst:
Timothy J Daley, Boston (1) 617-530-8121; timothy.daley@standardandpoors.com

Secondary Contact:
Henry W Henderson, Boston (1) 617-530-8314; henry.henderson@standardandpoors.com


Table Of Contents

Rationale

Outlook

Related Criteria And Research




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Summary:
Canton, Massachusetts; General Obligation; Note
Credit Profile
US$14.775 mil GO mun purp loan bnds ser 2014 dtd 03/15/2014 due 03/15/2029
  Long Term Rating                                      AAA/Stable                          New
US$2.916 mil GO BANs dtd 03/27/2014 due 03/27/2015
  Short Term Rating                                     SP-1+                               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' long-term rating, and stable outlook, to Canton, Mass.' series
2014 general obligation (GO) bonds. In addition, Standard & Poor's assigned its 'SP-1+' short-term rating to the town's
series 2014 GO bond anticipation notes (BANs) maturing March 27, 2015.

At the same time, Standard & Poor's affirmed its 'AAA' long-term rating, with a stable outlook, on Canton's GO bonds
outstanding.

The town's full faith and credit secures the bonds. We understand that proceeds will be used to refund Canton's series
2004A GO bonds outstanding, as well as to redeem $2.2 million in BANs maturing March 27, 2014. Town officials
estimate about $1.6 million in net present value savings equivalent to 9.4% of refunded principal. Savings will be taken
over the life of the bonds with no extension of maturities.

The short-term rating reflects our view that Canton maintains a very strong ability to pay principal and interest when
the notes come due. In our opinion, the town has a low market risk profile because it maintains strong legal authority
to issue long-term debt to take out the notes and is a frequent issuer that regularly provides ongoing disclosure to
market participants. We understand that the series 2014 BAN proceeds will be used to finance various capital projects
as well as capital equipment purchases.

In our view, the rating is based on our assessment of the following factors for Canton:

• Very strong economy, featuring extremely strong property wealth and access to the broad and diverse Boston
  metropolitan statistical area;
• Strong budgetary flexibility, with 2013 audited available reserves at 10.5% of general fund expenditures;
• Strong budgetary performance and stable revenue profile, with no appreciable funding interdependence with the
  state or federal government;




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Summary: Canton, Massachusetts; General Obligation; Note


• Very strong liquidity, providing very strong cash levels to cover both debt service and expenditures;
• Strong management conditions led by good financial policies; and
• A very strong debt and contingent liability position characterized by low debt service as a percent of total
  governmental funds expenditures.

Very strong economy
Canton, with a population of about 22,000, 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. Canton's income levels are very strong, in our opinion -- the projected
median household effective buying income is 152% of the national level. The Norfolk County unemployment rate was
5.6% in 2012, below state and national levels as it has historically been.

As for the real estate market, we are seeing signs that values are stabilizing. Based on our regional forecasts, recent
data indicate that median home prices are improving and that housing starts are trending upward. The town's assessed
value (AV) decreased by an average of about 2% from fiscal years 2008 to 2013 to $3.89 billion. However, according to
management, current values will be stable, and could possibly rise modestly in the future. The per capita market value
is at a level we consider extremely strong at $177,000 in part reflecting Canton's strong commercial and industrial tax
base, which comprises 20% of assessed value (AV). In addition, we consider the town's tax base very diverse, with the
top 10 taxpayers representing about 7% of total AV.

Strong budget flexibility
Canton's financial position remains strong in our opinion, with audited fiscal 2013 at $8.6 million or 10.5% of
expenditures. For fiscal 2012, available reserves closed with a balance of $7.9 million, equivalent to 10% of
expenditures. Canton also maintains an unused levy capacity that totals $611,000 in fiscal 2014, equivalent to 1% of
general fund expenditures. The unused levy capacity provides additional flexibility because the town can raise the tax
levy by an equivalent amount without the need to go out for a Proposition 2 1/2 voter-approved override.

Management conservatively projects fiscal 2014 will close with at least a $1 million surplus, which would improve
available reserves to $9.6 million, equivalent to 12.5% of expenditures.

Strong budgetary performance
The town's budgetary performance has been strong, in our view. Canton closed fiscal 2013 with a $782,000 general
fund operating surplus (about 1% of budget) and a $1.2 million governmental funds operating surplus (1.3% of budget)
after adjusting expenditures for capital outlay from bond proceeds and recurring transfers in from Canton's water and
sewer funds. The town's 2014 budget totals $76.6 million, a 3.6% increase over the adopted 2013 budget. Property
taxes are Canton's leading revenue source, accounting for about 80% of budgeted general fund revenues. State aid and
local receipts make up the remainder at 11% and 6%, respectively. Management projects fiscal 2014 will close with
positive results due to better-than-anticipated revenue growth and a one-time Federal Emergency Management
Agency reimbursement for damage associated with flooding in 2010. Consequently, management expects to add about
$1 million to available reserves.




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Summary: Canton, Massachusetts; General Obligation; Note


Very strong liquidity
Supporting the town's finances is what we consider very strong liquidity, with total available cash at 40% of total
governmental fund expenditures and 600% of debt service. We believe Canton has access to external liquidity and
typically issues GO debt to finance significant capital related activities.

Strong management conditions
We view the town's management conditions as strong, with good financial practices. We believe management is
conservative in its revenue and expenditure assumptions, which are supported by historical trends, and analysis of past
budget-to-actual performance. Town officials regularly monitor Canton's budget performance and present reports on a
monthly basis to department heads and the town administrator. Town management also performs a three-year budget
forecast that is communicated throughout department heads. Canton maintains a five-year capital improvement
program that identifies funding sources and a reserve and liquidity policy targeting at least 5% of total expenditures.

Very strong debt and contingent liability profile
In our opinion, the town's debt and contingent liability profile is strong, with debt service at 6.7% of governmental fund
expenditures and net direct debt at 38% of current revenue. As of June 30, 2013, Canton has about $37 million overall
net debt, which is net of self-supporting water and sewer debt paid for by user charges. Enhancing the town's debt
profile is its plan to retire 79% of principal debt in the next 10 years. Management indicates Canton has no immediate
debt plans in the medium term.

A long-term credit consideration is the town's pension and other postemployment benefit obligation (OPEB) liabilities.
Canton participates in the Norfolk County Retirement System and, as of Jan. 1, 2012 (the most recent data available),
its share of the system's estimated unfunded actuarial liability was $37.5 million, and the pension system was about
54% funded overall. The town pays the full annual required contribution (ARC), which was $3 million in fiscal 2013.
Canton's OPEB liability as of Jan. 1, 2013, was valued at $142.8 million, assuming a 4.2% investment return, with a
$12.3 million ARC in fiscal 2013, or 15% of general fund expenditures. The actual payment in fiscal 2013 was $4.5
million, or 37% of the ARC. Canton established an OPEB trust fund in 2012 and deposited $400,000 in fiscal 2014. In
fiscal years 2013 and 2012, the town deposited $50,000 and $100,000, respectively. Management indicates that it will
budget to deposit at least $400,000 annually into the trust fund in addition to the pay-as-you-go amounts in the future.
The trust has a current balance of $555,000. Combined pension and OPEB contributions for fiscal 2013 were
equivalent to 8.4% of expenditures. While these identified payments will be a positive step toward reducing the OPEB
liability, they still fall significantly short of the ARC. However, Canton has recently made changes to its health care
plan design that reduced the liability, and management indicates that it plans to continue to make other changes to
reduce the liability.

Strong Institutional Framework
We consider the Institutional Framework score for Massachusetts towns as strong. (See the Institutional Framework
score for Massachusetts , published Sept. 12, 2013.)




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Summary: Canton, Massachusetts; General Obligation; Note




Outlook
The stable outlook reflects our view of Canton's strong economy and financial position. We expect the town's tax base
to remain a sound source of revenue, which should enable Canton to maintain its strong financial position. While the
OPEB ARC is significantly higher than current payment amounts, officials have identified efforts to increase funding
and decrease expenditures, and we will continue to monitor these efforts. Standard & Poor's does not expect to change
the rating in the two-year parameter of the stable outlook, as we expect the town to continue to maintain consistently
strong reserve levels and make progress on funding its long-term liabilities.



Related Criteria And Research
Related Criteria
• Ratings Above The Sovereign: Corporate And Government Ratings—Methodology And Assumptions, Nov. 19, 2013
• USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013
• USPF Criteria: Bond Anticipation Note Rating Methodology, Aug. 31, 2011
• USPF Criteria: Financial Management Assessment, June 27, 2006

Related Research
• Institutional Framework Overview: Massachusetts Local Governments, Sept. 12, 2013
• S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013
• U.S. State And Local Government Credit Conditions Forecast, Dec. 17, 2013


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