Fitch upgrades outlook before $92M bond sale

NEW HAVEN — Wall Street bond rating agency Fitch Ratings has upgraded the outlook on the city’s credit from stable to positive in advance of an upcoming $92 million bond sale, Fitch announced Tuesday.

Fitch has assigned a BBB rating to New Haven’s upcoming general obligation bond sale, which will include $53.61 million in Series A general obligation bonds and $38.72 million in Series B taxable general obligation refunding bonds, Fitch said in a statement.

Both sets of bonds are scheduled to be priced via a negotiated sale the week of Oct. 18.

“The series A bonds will fund various city and school improvements and the series B bonds will be issued to refinance a portion of the city’s outstanding GO bonds

for savings,” the statement said.

Fitch also affirmed about $625 million in outstanding general obligation bonds at a BBB rating, as well as New Haven’s issue default rating, or IDR, at BBB, it said.

Mayor Justin Elicker said the Fitch rating shows that steps the city took to improve its finances were the right steps.

“It affirms that we’re in a position to shore up the city’s financial position and that’s a result of a combination of factors — the work that the state delegation and our team did to increase annual PILOT funding and also our efforts to reduce some of the structural issues in our city budget, such as reducing the investment rate of return in the assumptions for our pension investments,” Elicker said.

The city also took steps to cap “the amount of debt that we issue each year to $30 million, which is the lowest that we’ve seen in many years ... and also, we’ve seen two years of surpluses,” Elicker said.

“The Outlook Revision to Positive reflects the projected maintenance of adequate reserves through fiscal 2021 and improvement in city revenues primarily from the state’s revised PILOT program, which will help absorb growth in city spending,” Fitch said in the statement.

“Additionally, positive results from the city’s next five-year property revaluation, available early next year, could improve Fitch’s expectations for natural growth prospects,” it said. “Fitch expects management will continue recent efforts to manage expenses in line with natural revenue growth despite upward pressure tied to growth in salaries, medical and pension benefits and debt service.”

Fitch cautioned, however, that “the city’s elevated long-term liability burden associated with debt and weakly funded pensions despite fully-funding actuarially-determined contributions (ADCs) is expected to remain a burden on the budget.

“However, management has lowered investment rate of return assumptions, which will increase annual contributions but should improve funded levels over time,” it said. “Prudent management of new revenue growth to align with long-term growth in spending will be needed to avoid future structural imbalance and maintain adequate reserves. Such actions could support improvement in rating.”

The city’s Board of Education “is projecting continued balanced operations, aided by federal stimulus moneys,” the statement said.