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Moody's downgrades Town of Templeton MA's GO rating to A2; outlook is negative

30 Jul 2013

Downgrade affects $11.2 million of outstanding debt

New York, July 30, 2013 -- Moody's Investors Service has downgraded the Town of Templeton MA's general obligation rating to A2 from A1 and assigned a negative outlook. Concurrently, we have removed the rating from review, as our downgrade of the rating resolves the earlier action. Moody's placement of the rating under review, with direction uncertain on June 26, 2013, was prompted by a lack of sufficient 2012 financial information, which we have since received.

The town's unlimited and limited tax GO bonds are secured by its GO unlimited and limited tax pledge respectively, subject to the Commonwealth of Massachusetts' (Aa1 Stable Outlook) Proposition 2 ½ tax levy limitation. As of June 30, 2012, the town has approximately $6.9 million of unlimited tax GO bonds and $4.3 million of limited tax GO bonds outstanding.

SUMMARY RATINGS RATIONALE

The downgrade to A2 reflects the town's deteriorating financial position, which is driven by rising expenditures and annual transfers to the sewer fund to pay for ongoing projects. This pressure is demonstrated by the town's falling general fund balance levels, which declined by 40% from 2008 to 2012. In addition, the town's new management team may not be able to reverse these trends expeditiously given their limited knowledge of the town's finances. The A2 rating also considers the town's modest-sized tax base, manageable debt burden, and below-average socioeconomic indices.

The negative outlook incorporates Moody's expectation that the town's reserve position will continue to diminish given ongoing operating pressure and management's lack of clear plans to address this pressure.

STRENGTHS

Manageable debt burden

CHALLENGES

Narrowing reserve position

Management's limited understanding of the town's fiscal pressures

General fund substantially supporting the costs of ongoing sewer projects

Modest tax base and wealth levels

OUTLOOK

The negative outlook reflects Moody's expectation that the town's financial position will continue to deteriorate, with additional operating deficits in the near term. It also incorporates the town's lack of formalized plans to reduce the town's dependence on reserves. Further weakening of town reserves could lead to additional rating pressure.

WHAT COULD MAKE THE RATING GO UP (REMOVAL OF NEGATIVE OUTLOOK)

Improvement in management practices, evidenced by the implementation of strategies to reduce reliance on reserves and elimination of qualified audit opinions

Growth and stabilization of general fund reserves