New Issue: Moody's revises Springfield, MA's outlook to positive and affirms A2

underlying, Aa2 enhanced; city has $260 million in outstanding GO debt

Global Credit Research - 30 Jan 2015
Assigns Aa2 enhanced and A2 underlying to $72.5M GO Bonds and MIG 1 to $12M GO BANs

SPRINGFIELD (CITY OF) MA

Cities (including Towns, Villages and Townships)
MA
Moody's Rating

ISSUE

UNDERLYING RATING
RATING

General Obligation State Qualified Municipal Purpose Loan of 2015 Bonds, Series A
Sale Amount
$53,336,000
Expected Sale Date
02/11/15
Rating Description
General Obligation

A2

Aa2

General Obligation State Qualified Municipal Purpose Loan of 2015 Bonds, Series B
(Taxable)
Sale Amount
$1,300,000
Expected Sale Date
02/11/15
Rating Description
General Obligation

A2

Aa2

General Obligation State Qualified Refunding Bonds

Sale Amount
$17,895,000
Expected Sale Date
02/04/15
Rating Description
General Obligation

A2

Aa2

Series A General Obligation Bond Anticipation Notes

Sale Amount
$12,028,673
Expected Sale Date
02/11/15
Rating Description
Note: Bond Anticipation

MIG 1

Moody's Outlook POS

NEW YORK, January 30, 2015 --Moody's Investors Service has assigned a Aa2 enhanced and an A2 underlying
long-term rating to the City of Springfield's (MA) $53.3 million General Obligation State Qualified Municipal Purpose
Loan of 2015 Bonds, Series A, $1.3 million General Obligation State Qualified Bonds, Series B, and $17.9 million
General Obligation State Qualified Refunding Bonds. We have also assigned a MIG 1 rating to the city's $12
million General Obligation Bond Anticipation Notes (dated February 13, 2015 and payable June 12, 2015). The
outlook has been revised to positive from stable. Concurrently, Moody's has affirmed the Aa2 enhanced rating and
A2 underlying rating on the city's outstanding GO debt. Post-sale, the city will have $260 million of outstanding GO
bonds.

SUMMARY RATING RATIONALE

The underlying A2 rating reflects the city's sizeable tax base with below average demographics. The economy
benefits from its status as a regional employment center for western New England as well as the stabilizing
presence of several higher education and healthcare institutions. The rating also incorporates a stable financial
position with limited revenue raising flexibility under the statewide property tax cap. Additionally, the rating reflects
an above-average debt profile heavily supported by state reimbursements.
The Aa2 enhanced rating on all of the city's outstanding debt reflects the Massachusetts Qualified Bond Program
(QBP, rated Aa2/stable outlook), an established pre-default state aid intercept program, through which debt
service will be paid directly by the commonwealth.
The short term MIG 1 rating incorporates the enhanced rating based on the Massachusetts QBP, given that the
projects have been approved by the Municipal Finance Oversight Board (MFOB) to be permanently financed
through the QBP.
OUTLOOK
The positive outlook reflects Moody's expectation that the city will continue to prudently manage its financial
operations despite the limitations of the proposition 2 levy limit. Additionally, we expect that in conjunction with
the construction of a recently approved casino development, taxable values will continue to improve over the near
term. Further, anticipated revenues from the casino project are expected to increase financial flexibility and allow
the city to remain in compliance with its adopted financial management ordinances that were implemented upon its
exit from state oversight in 2009.
WHAT COULD MAKE THE RATING GO UP
- Significant tax base expansion, resulting in increased levy capacity
- Established trend of structurally balanced budgets
- Additional operating surpluses and augmentation of reserve levels
- Reduced reliance on one-time revenues for operations, including stabilization funds
WHAT COULD MAKE THE RATING GO DOWN (removal of the positive outlook)
- Material declines in the tax base, resulting in the inability to increase the property tax levy
- Deficit operations and failure to maintain structural balance
- Significant reduction in reserves
- Significantly increased debt burden beyond current expectations
STRENGTHS
- Serves as employment center for Western Massachusetts; institutional presence
- Award of casino license expected to augment recent trend of tax base growth
- Satisfactory reserve levels
- City maintains and adheres to formal financial policies
CHALLENGES
- Negligible capacity under the levy limits of Proposition 2
- Above average debt burden
- Below-average demographic profile and high unemployment
- Large underfunded liabilities for pension and OPEB

RECENT DEVELOPMENTS
The city had positive operations in fiscal 2014, with an operating surplus of approximately $6.7 million. The surplus
was due to favorable receipt of tax lien revenues and savings in education expenditures.
In November of 2014, Massachusetts (Aa1 stable) voters upheld legislation allowing for resort style casinos in the
state. The sole license for Western Massachusetts was awarded to Springfield, and MGM Resorts International
(MGM, B2 stable) will begin construction on an $800 million development this spring.
DETAILED RATING RATIONALE
MASSACHUSETTS QUALIFIED BOND PROGRAM
The enhanced Aa2 rating and stable outlook, assigned to all of the city's long-term debt, reflect the credit
enhancement provided by the QBP. Under the direct-pay program, the Commissioner of Revenue authorizes the
State Treasurer to deduct from the city's monthly state aid payments an amount sufficient to meet the city's debt
service on qualified securities and directly remit to the trustee. In fiscal years 2015 and 2016, Springfield is
projected to receive aid from the commonwealth totaling more than 10 and 11 times the city's obligation for debt
service, respectively. Moody's believes that the commonwealth's strong commitment to state aid for municipalities
and the program's sound payment mechanisms, which do not rely on a notice of potential default, enhance the
likelihood of full and timely debt service payment. The programmatic rating is linked to the commonwealth's general
obligation rating of Aa1 with a stable outlook.
ECONOMY AND TAX BASE: MODERATE NEW DEVELOPMENT EXPECTD FOR STRUGGLING TAX BASE
Springfield's $7 billion tax base is expected to stabilize over the near term as the residential housing market
continues to recover and several large developments break ground. Valuations declined annually from 2008 to
2013, with assessed values falling by 14.2% during that time. Assessed value growth returned in fiscal 2014 with a
3.3% increase and an additional 1.8% increase in fiscal 2015. The history of assessed valuation declines are
particularly problematic for Springfield, given that the city has had almost no available primary levy capacity under
Proposition 2 since fiscal 2010. Proposition 2 was enacted in 1980 and has dual limits: the annual property tax
levy may increase up to 2% of the prior year's levy but ultimately the property tax levy is limited to no more than
2% of assessed value. The city's available levy capacity was a negligible $11,830 in fiscal 2015. Future
assessed valuation declines could continue to reduce growth in the city's property tax levy.
Reflecting the city's struggle with economic decline in recent decades, the city's income and wealth levels remain
significantly lower than state medians: poverty levels in the city remain elevated at 23.1% and the October 2014
unemployment level of 8.4% is well above commonwealth and national rates of 5.1% and 5.5%, respectively. The
city's equalized value per capita of $45,907 is well below commonwealth and national medians for Moody's-rated
issuers.
Springfield remains the center of economic activity in western Massachusetts, with health care, financial services,
government, manufacturing and higher education sectors represented as major employers. While the city has
enjoyed modest new growth revenue, averaging $4.4 million annually from 2004 to 2015, it provides only limited
additional financial flexibility relative to its $623 million operating budget. Providing stability to the city's tax base is
the presence of several corporate headquarters, including the Massachusetts Mutual Life Insurance Company
(Aa2 stable), Smith and Wesson, Merriam-Webster, Big Y Supermarkets, and Peter Pan Bus Lines, among
others. Not captured in the city's equalized value are the tax-exempt facilities of Western New England University
and Law School, Springfield College (Baa1 stable), Springfield Technical Community College and American
International College. Total enrollment is estimated at 18,955 while employment totals an estimated 2,127 full-timeequivalent positions. Further, the city is home to the area's leading healthcare institutions including Baystate
Medical Center (A2 stable) which employs almost 9,000 people.
The most notable development has been the city's license to operate a resort style casino within the city. MGM
has been awarded the contract and will soon commence construction on an $800 million resort with a target
opening date of 2017. The project will bring an estimated 2,000 construction jobs and 3,000 permanent jobs to the
city. In addition, MGM has pledged funds for other area projects including Union Station which will be undergoing a
large-scale renovation. In addition to the direct benefit provided by the MGM investment, we expect that the resort
will spur other ancillary development as well. The financial benefits are discussed in the section below.
FINANCIAL OPERATIONS AND RESERVES: STABLE FINANCIAL POSITION; FLEXIBILITY REMAINS
LIMITED BY LEVY LIMIT

Springfield's financial position is expected to remain stable over the near term given currently healthy reserve
levels and management's adherence to formal fiscal policies. The city will continue to face financial challenges
given its limited revenue raising flexibility and diminished opportunities for expenditure reductions.
The fiscal 2014 budget was adopted after the city worked to close an initial $23.5 million gap, which was eliminated
through a combination of spending reductions ($13.3 million), revenue enhancements ($6.2 million), and the use of
overlay surplus ($3 million). The budget represented a 3.5% increase in spending, and was balanced with a $7.4
million appropriation of stabilization funds. Through a combination of several positive revenue and expenditure
variances, the city produced a $6.7 million surplus after fully replenishing the initial appropriation of stabilization
funds. At year end, total General Fund balance was $104.7 million, or 16.8% of revenues. Unassigned fund
balance was $64.1 million, or a satisfactory 10.5% of revenues. At these levels, fund balance remains well within
the city policy to maintain unassigned reserves between 5% and 15% of budget.
The fiscal 2015 budget represented a 1.75% increase in spending, and was balanced with an appropriation of $2.8
million of stabilization funds and $2.7 million from overlay surplus. Additionally, the budget included a 1.8%
increase to the property tax levy, which was the maximum allowed under proposition 2 . The budget also
included a $1 million upfront and unrestricted payment from MGM. To date, management reports that operations
are performing well due to strong budgetary performance and an additional $4 million in unbudgeted payments from
MGM. The payments are part of $15.2 million in upfront payments promised to the city which will be disbursed
throughout the three years of construction. Once operational, MGM will make an annual $17.6 million payment to
the city, in lieu of taxes, as well as $5 million in annual impact and community development fees. The city is also
eligible for a portion of gross gaming revenue at the facility.
The fiscal 2016 budget is in the planning phases, however the city has identified a $14 million gap. Expenditure
drivers are employee health insurance, police, and education. The budget will include $3 million in casino
payments.
Although challenged by its limited revenue raising flexibility, the city has managed well through the downturn and
recovery. Aid from the commonwealth remains Springfield's primary revenue source (65% of 2014 revenues)
followed by property taxes (27%). Property tax collections remain very strong, averaging over 99% in the last
several fiscal years, partially the result of the city's aggressive collection of delinquent taxes. The city's primary
expenditures are for education (66% of 2014 expenditures), followed by public safety (10%), and employee
benefits (8%).
Liquidity
The city's net cash position at the close of fiscal 2014 was $144.8 million, an estimated 23.3% of revenues.
DEBT AND PENSIONS
The city's debt position will remain elevated over the medium term despite a significant portion of outstanding debt
supported by the Massachusetts School Building Authority (MSBA, Aa2 stable). The city's direct debt ratio is an
elevated 3.4% of equalized value, although the debt burden is mitigated by the MSBA's reimbursement for school
construction debt, which represents approximately 53% of the city's total outstanding long term debt. After
incorporating the MSBA reimbursement, the city's debt burden falls to a more moderate 2.3%. Further, debt
service as a percent of budgeted General Fund expenditures remains affordable at 6.3%. Principal amortization is
average for the state, with 89% retired within 10 years.
Debt Structure
All of Springfield's debt is fixed rate.
Debt-Related Derivatives
Springfield has no derivatives.
Pensions and OPEB
The funded status of the city's pension plan dropped to a low of 27% as of January 1, 2014 from 29% two years
prior, largely attributable to a reduction in the plan's assumed rate of investment return from 8.125% to 7.875%.
The city has established a funding schedule that will provide for full funding by 2036, slightly ahead of the staterequired funding schedule of 2040. The city continues to fully fund its annual required pension contribution (ARC)
as required for all Massachusetts municipalities. Springfield's fiscal 2014 pension contributions were equal to

$37.2 million, or a manageable 6% of general fund expenditures. The city's adjusted net pension liability, under
Moody's methodology for adjusting reported pension data, is $1.2 billion, representing an elevated 1.79 times
General Fund revenues, or 14.7% of equalized value. Moody's uses the adjusted net pension liability to improve
comparability of reported pension liabilities. The adjustments are not intended to replace the city's reported liability
information, but to improve comparability with other rated entities.
The city is currently funding its Other Post-Employment Benefits (OPEB) obligation on a pay-as-you-go basis. In
fiscal 2014, the city funded 34% of the $67.8 million OPEB ARC, representing $23.1 million, or 3.7% of General
Fund expenditures. The total Unfunded Actuarially Accrued Liability (UAAL) for OPEB is a significant $873 million
as of July 1, 2013, down from 1.03 billion, one year prior.
MANAGEMENT AND GOVERNANCE
Massachusetts cities have an institutional framework score of 'Aa' or strong. The primary revenue source for most
Massachusetts municipalities is property taxes which are highly predictable and can be increased annually as
allowed under the Proposition 2 levy limit. In Springfield, however, State Aid represents the primary revenue
source and the property tax levy is limited to 2 % of assessed values. Expenditures are largely predictable and
cities have the ability to reduce expenditures.
KEY STATISTICS
- 2015 Equalized Valuation: $7.0 billion
- 2015 Equalized Value Per Capita: $45,907
- Median Family Income as % of US Median: 65.9%
- Fiscal 2014 General Fund balance as a % of Revenues: 16.8%
- 5-Year Dollar Change in Fund Balance as % of Revenues (2010-2014): 7.49%
- Fiscal 2014 Cash Balance as % of Revenues: 23.25%
- 5-Year Dollar Change in Cash Balance as % of Revenues, adjusted (2010-2014): 9.34%
- Institutional Framework: "Aa"
- 5-Year Average Operating Revenues / Operating Expenditures (2010-2014): 1.00x
- Net Direct Debt as % of Full Value: 2.6%
- Net Direct Debt / Operating Revenues: 0.29x
- 3-Year Average of Moody's ANPL as % of Full Value: 15.13%
- 3-Year Average of Moody's ANPL / Operating Revenues: 1.71x
OBLIGOR PROFILE
Springfield, the fourth largest city in New England, is located in western Massachusetts and serves as a regional
employment center. The city has an estimated population of 153,060.
LEGAL SECURITY
Debt service on the rated debt is secured by the city's GO limited tax pledge as debt service has not been exempt
from the property levy limitations of Proposition 2 .
USE OF PROCEEDS
The Series A and B bonds are being issued to provide financing for various city capital needs, including schools.
The refunding bonds are being issued to refinance the outstanding 2007 bonds for an estimated net present value
savings of $1.6 million, or 9.1% of refunded principal.
The notes are being issued to refinance existing BANs originally issued to fund emergency storm cleanup costs
related to a tornado in the area, and to provide short-term financing for certain school projects

RATING METHODOLOGIES
The principal methodology used in the underlying rating was US Local Government General Obligation Debt
published in January 2014. The principal methodology used in the enhanced rating was State Aid Intercept
Programs and Financings: Pre and Post Default published in July 2013. The principal methodology used in the
bond anticipation notes rating was US Bond Anticipation Notes published in April 2014. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
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For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory
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with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating
action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where
the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner
that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for
the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating
outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.
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each credit rating.
Analysts

Thomas Compton
Lead Analyst
Public Finance Group
Moody's Investors Service
Heather Guss
Backup Analyst
Public Finance Group
Moody's Investors Service
Geordie Thompson
Additional Contact
Public Finance Group
Moody's Investors Service
Valentina Gomez
Additional Contact
Public Finance Group
Moody's Investors Service
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