Fitch Ratings has assigned a rating of 'AAA' to the following general obligation (GO) bonds to be issued by the Town of Manchester, Connecticut:

--$17,190,000 GO bonds, 2016 series A.

The bonds will be sold via competition on or about Feb. 10, pending market conditions. Proceeds will be used to fund school improvements and road and sidewalk projects.

In addition, Fitch affirms its 'AAA' rating on the approximately $107 million of outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the town backed by its full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: General fund operating results have been stable over an extended period, and reserve levels maintained at a satisfactory level. Keys to the town's financial performance are its ability and willingness to increase property taxes, the dominant general fund revenue source, and careful expenditure management.

FAVORABLE LIABILITY PROFILE: Debt levels are low, outstanding debt is repaid rapidly and future capital needs and issuance plans are manageable. Unfunded pension liabilities are not concerning, but other post-employment benefits (OPEB), which Fitch considers a more flexible long-term obligation, are more considerable. The cost of servicing debt, pension and OPEB consumes an affordable share of the operating budget.

BUSINESS CENTER PROXIMATE TO HARTFORD: The town is recognized as a retail and business destination in the East Hartford area. Its proximity to Hartford, the state capital and regional economic center, afford residents broader employment opportunities. Resident income and employment metrics are good. The town is relatively mature which could serve to strain economic and tax base growth opportunities over time.

RATING SENSITIVITIES

FINANCIAL STABILITY: Although not anticipated, a period of adverse budgetary performance resulting in a decline in the town's reserves or liquidity could pressure the rating.

CREDIT PROFILE

Manchester comprises an area of 27.2 square miles in the Connecticut River Valley, approximately nine miles east of Hartford at the intersection of interstates 84 and 384. The town's population is fairly steady, estimated at 58,106 in 2014.

SATISFACTORY RESERVE LEVELS

The town's current general fund reserve position is satisfactory with an unrestricted fund balance for fiscal 2015 totaling $19.6 million or 10.5% of spending. The town has consistently complied with a formal reserve policy equal to 5%-7% of revenue. Reserves are not particularly robust, but Fitch gives credit to the steady maintenance of reserves over time as well as the fairly predictable and stable nature of the town's revenue stream. At year end fiscal 2015, there were no fund deficits in any of its governmental funds or internal service funds (excluding temporary deficits reported in the capital project fund).

BUDGETARY BALANCE A KEY RATING STRENGTH

The consistency of general fund operating results over time is a key factor in Fitch's assessment of the town's finances. From fiscal years 1997-2015, the town has incurred a general fund deficit in only four years. The use of reserves has been a modest percentage of spending primarily due to increased pay-as-you-go capital investment. General fund results for fiscal 2015 (year ending June 30) yielded a third consecutive operating surplus after transfers that was equal to $1.3 million (0.7% of spending).

The adopted budget for fiscal 2016 appropriates $1.18 million of fund balance. The fund balance appropriation can largely be linked back to a $668 thousand increase in capital spending and efforts to mitigate a larger tax increase. Fitch believes management will continue to adhere to and likely exceed its fund balance policy and continue to take action through future budgets to minimize the use of reserves for recurring spending.

MODEST GROWTH IN TAX LEVY

General fund operations are largely funded by real property taxes. The fiscal 2016 tax levy totals $137 million or 76% of total general fund revenue. The town has enacted millage rate increases in the range of 2%-4% annually (excluding revaluation years) to support growth in spending and fiscal stability. The town's tax burden remains regionally competitive and the town is not subject to a cap or limit on the property tax rate or levy, suggesting strong revenue raising capacity going forward.

Additional similar tax rate increases will likely be necessary to preserve the town's financial position over the next several years. The town is near fully developed limiting opportunities for growth related to new construction. Housing prices have not demonstrated recovery; home prices fell 2.8% on the year according to data from Zillow, and remain 24% below the pre-recession peak. The town's grand list (or tax base) has increased a meager 2.2% in aggregate from fiscal 2009-2016, including a 0.8% gain in fiscal 2016.

VERY LOW DEBT

Fitch-estimated overall debt is low at 1.7% of market value or $1,632 per capita. Future borrowing plans include the remaining portion of previously authorized debt to fund various public improvements and school construction costs. The borrowing would be sizable relative to the town's outstanding direct debt (around $49 million); however, the project will be eligible for state school construction grants reducing the local contribution, and outstanding long-term debt is repaid rapidly (77% within 10 years) tempering the impact of any additional indebtedness.

AFFORDABLE RETIREE LIABILITIES

Liabilities related to the town's single-employer defined benefit pension plan are manageable. The plan, which covers substantially all town employees except for certified teachers (which the state funds and manages) and firefighters (which is a very minor plan that is over 90% funded), reported a funded ratio of 78% as of the most recent measurement date of July 1, 2015. The Fitch-adjusted ratio, substituting a 7% rate of return for the plan's 7.5% assumption, results in a funded ratio of 73.6%. The Fitch-adjusted net pension liability (NPL) is $56.4 million (compared to the reported NPL of $45.3 million) or 1% of market value. The town fully funds the actuarially determined contribution (ADC) for the pension plan, and the plan was closed to all new employees with the exception of police in 2004. Town employees hired after 2004 participate in a defined contribution plan.

OPEB liabilities are somewhat high at $169.1 million or 3% of market value as of July 1, 2014. The town has enacted a series of modifications to benefit coverage but continues to fund 50% to 100% of the cost of medical coverage for certain classes of employees, contributing to the high liability. The town established a trust for OPEB in fiscal 2009, but has since funded the liability on a pay-as-you-go basis. The cost of funding the town's OPEB, pension, and debt service remains fairly low at 12% of governmental fund spending in fiscal 2015.

GOOD COMMERCIAL BASE AND CLOSE PROXIMITY TO HARTFORD

Manchester is a suburb of Hartford favorably positioned along I-84 with a fairly sizable and diverse commercial core. The town has a large retail presence anchored by The Shoppes at Buckland Hills, a 1.1 million square feet shopping and dining destination. The town's commercial core includes manufacturers Vision Technical Molding and ABA Tools, and printing companies Allied Printing Services and R.R. Donnelly.

Manchester Memorial Hospital is the second largest employer in the town with 1,500 employees and is currently pending the state's approval for sale to a private for-profit health system. The town identified potential benefits from the sale that include new property tax revenues from the hospital hitting the tax roll for the first time and increased capital investments.

Resident employment growth accelerated in 2014 and remains strong through November 2015 after a slow recovery from the recession. Like elsewhere in the state, population levels are stagnant since 2010 and the town's average age is getting younger. Town employment trends have been fairly consistent with the state and Hartford metropolitan statistical area. The town's November 2015 unemployment rate of 4.6% is down from 5.8% in November 2014. The town's population exhibits educational attainment on par with the state and above the national standard. Median household income lags the wealthy state but is 118% of the national norm.

Additional information is available at 'www.fitchratings.com'.

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by the end of the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.

Applicable Criteria

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998370

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998370

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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