Bond Rating Agency Downgrades Hamden Again

Citing continuing problems with the pension fund, Fitch Ratings has downgraded the town's bond rating again, this time from 'A-' to 'BBB+' and has extended its negative outlook.

It's the third year the town has experienced a downgrade in its bond rating. The bonds are scheduled for a competitive sale on or about April 25, 2013, according to the report. 

The town's financial profile is "improving but still weak," according to the report. 

The continued poor outlook is due to "the continued weakening of the town's pension plan and obstacles to pension stability, most notably, the need to negotiate benefit reforms with labor to stave off plan insolvency," according to the report.

The report pointed to the dropping ratio of the pension's plan and annual contributions that fall short of recommendations, a low fund balance, the tax increase proposed for the next fiscal year and an increase in debt should the town approve pension obligation bonds.

"The likely issuance of pension obligation bonds (POBs) would double the town's outstanding debt while partially addressing the unfunded liability," the report says. "This risk is tempered by the fact that overall debt metrics would remain fairly moderate."

Mayor Scott Jackson has proposed allocating $12.5 million for the pension fund, which was part of the recommendation of the Segal Company, the consulting firm that did a study on the town's options on addressing the pension problem.

But it will take more than pension obligation bonds and pension fund contributions to solve the problem, the report notes — the town must negotiate with unions to change benefit packages to lessen future obligations.

"The town has not formally initiated pension discussions with labor. In Fitch's view these negotiations have the potential to be politically charged and contentious, subjecting the town's pension reform plan to a good deal of execution risk," the report says.

"Even with issuance of POBs and success in negotiations, the town does not expect to achieve the full $27 million funding for six years," the report says. "The maintenance of the Negative Outlook largely reflects this challenge, and will likely be resolved within the year with a rating downgrade of at least one notch if the town is unable to come to an agreement with its bargaining units."