Summary:

Chambersburg Borough,
Pennsylvania; General Obligation
Primary Credit Analyst:
Timothy J Daley, Boston (1) 617-530-8121; timothy.daley@standardandpoors.com
Secondary Contact:
Timothy W Little, New York (1) 212-438-7999; timothy.little@standardandpoors.com
Table Of Contents
Rationale
Outlook
Related Criteria And Research
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Summary:
Chambersburg Borough, Pennsylvania; General
Obligation
Credit Profile
Chambersburg Boro GO (ASSURED GTY)
Unenhanced Rating A+(SPUR)/Stable Outlook Revised
Many issues are enhanced by bond insurance.
Rationale
Standard & Poor's Ratings Services has revised its outlook on Chambersburg Borough, Pa.'s general obligation (GO)
debt to stable from negative. At the same time, Standard & Poor's affirmed its 'A+' underlying rating (SPUR) on the
debt.
The outlook revision primarily reflects our opinion of Chambersburg Borough's recent budgetary performance and
stabilized finances. It also reflects our local GO criteria, released Sept. 12, 2013.
We base the SPUR on our assessment of the following factors for the borough:
Chambersburg Borough's local economy is weak, in our view, with projected per capita effective buying income at
79% of the national average. Market value is about $61,276 per capita. The borough serves an estimated population
of 20,572 in Franklin County in south-central Pennsylvania, with access to larger employment centers in
Hagerstown, Md., 20 miles to the south, and Harrisburg, Pa., 50 miles to the northeast. Leading county employers
include health care, government, and public education. Franklin County's unemployment was 6.2% in 2013,
according to the U.S. Bureau of Labor Statistics.
The borough's management conditions are adequate, in our opinion, with "standard" financial management
practices under our Financial Management Assessment methodology, indicating the finance department maintains
adequate policies in some, but not all, key areas. We view the borough's reserve policy of maintaining unassigned
fund balance equivalent to at least 5% of budgeted expenditures and a capital improvement program that is
completed annually and based off of a larger project list. In our opinion, highlights of the borough's management
policies include a reserve policy of maintaining an unassigned fund balance equivalent to at least 5% of budgeted
expenditures and a capital improvement program that is completed annually and based off of a larger project list.
We believe recent operational imbalances have resulted in weakening finances, However, more recently,
budgetary performance has improved to a level we consider very strong, with surpluses of 11.2% for the general
fund and 15.8% for total governmental funds in fiscal 2013. In fiscal 2012, the borough received a $1.6 million
Staffing for Adequate Fire and Emergency Response (SAFER) grant to be used over three budget years. The fiscal
2013 budget included $766,165 of a SAFER grant to balance the budget, which helped contribute to the strong
surpluses. In addition, the borough's fiscal 2013 operations were driven by improved real estate tax and earned
income tax performance. We do believe management has addressed the structural imbalance for fiscal 2014 as it
raised the mill rate by 3.5 mills to 23.5 mills from 20 mills per $1,000 of assessed value. The fiscal 2014 budget is
structurally balanced and totals about $12.6 million; management has budgeted for about a $300,000 surplus, and as
a result, we expect performance to deteriorate from 2013. However, we believe it will remain strong, led by
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improving economic conditions that should enhance local revenue and a manageable cost structure. Real estate and
earned income taxes are the borough's major source of revenues, accounting for 34% and 14%, respectively. In
addition, electric fund transfers account for about 8% of the general fund revenues. Based on power purchase
agreements that expire between 2018 and 2022, we expect power costs to decline significantly. With reduced power
supply costs, management is planning to rebuild reserves and recoup undercollected receivables, in addition to
being able to reduce rates by about 10% between 2013 and 2014.
Following four consecutive drawdowns due to an ongoing structural imbalance that resulted from the Emergency
Services Department's lack of sufficient revenue to cover expenses, the borough's financial position has stabilized. In
our view, budgetary flexibility is very strong with available reserves totaling $2.75 million, equivalent to 23.6% of
operating expenditures in fiscal 2013. However, fiscal 2013 budget flexibility was aided by the receipt of a $766,165
SAFER grant for emergency service department spending. The remainder of this grant will be spent down in fiscal
2014. Although management has budgeted to add about $300,000 to available reserves at the close of 2014 (Dec.
31), flexibility could decline to a level below 15% if the full grant is spent down. However, we do believe
management's recent millage rate increase has brought balance back to operations and has stabilized finances. As a
result, we believe budgetary flexibility will remain strong in the medium term.
In our opinion, the borough has very strong liquidity with total governmental cash as a percent of total
governmental funds expenditures at 278%. We note that historically, the borough's debt has been retired through
revenues generated by the utility funds, resulting in minimal carrying charges. Based on past debt issuance, we
believe Chambersburg Borough has strong access to capital markets to provide liquidity, if necessary. In our
opinion, the borough has contingent liquidity risk exposures that we consider manageable at the current rating level.
The exposures come from $9.4 million of GO debt currently outstanding sold directly to a private bank.
Management indicates it has access to liquidity sources within its general fund and enterprise funds, which total
about $25.1 million across all funds. In our analysis, if the obligation became immediately due and payable, the
borough would have sufficient liquidity to cover, at 2.67x, the full $9.4 million of principal outstanding.
In our opinion, Chambersburg Borough's debt and contingent liability profile is strong. Total direct debt is $15
million. After netting out the applicable share of debt we believe is self-supporting, net direct debt is 24% of total
governmental funds revenue. Historically, the borough's debt has been retired through revenues generated by the
utility funds, resulting in minimal carrying charges. We believe the borough's above-average amortization is a
positive credit factor with officials planning to retire 68% of principal in 10 years. At the same time, due to the
acceleration provisions within the loan agreement, we believe the borough has exposure to instrument provisions in
connection with its $9.4 million in direct purchase GO debt.
The borough participates in three self-administered single-employer defined benefit retirement plans that cover
bargaining and administrative employees, police officers, and paid firefighters, to which the borough contributed a
combined $1.45 million in fiscal 2013. All plans, with the exception of that for firefighters are funded over 80% -- the
firefighters' plan is funded at 77%. The borough also contributes to an other postemployment benefit (OPEB) plan,
which is funded on a pay-as-you-go basis. Most recently, in 2013, the borough contributed $59,000. As of the most
recent valuation date, Jan. 1, 2012, the borough's unfunded actuarial accrued liability was $1.5 million. The
combined pension and OPEB contributions represent 11.3% of total government expenditures for fiscal 2013.
We consider the Institutional Framework score for Pennsylvania boroughs strong. See Institutional Framework
score for Pennsylvania, published Sept. 12, 2013, on RatingsDirect.
Outlook
The stable outlook reflects Standard & Poor's opinion of the corrective actions Chambersburg Borough has taken to
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Summary: Chambersburg Borough, Pennsylvania; General Obligation
improve budgetary performance and budgetary flexibility. Although we view the local economy as weak, we believe
broader economic conditions within the state are improving, which should allow for the performance of the borough's
chief operating revenues, real estate, and earned income taxes to remain stable. Due to these factors and the borough's
adequate management conditions, we do not expect to change the rating over the two-year outlook period. If
performance were to start to weaken, and if budgetary flexibility were to decline, we could lower the rating.
Related Criteria And Research
Related Criteria
USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013
USPF Criteria: Contingent Liquidity Risks, March 5, 2012
USPF Criteria: Key General Obligation Ratio Credit Ranges Analysis Vs. Reality, April 2, 2008
USPF Criteria: Financial Management Assessment, June 27, 2006
Related Research
U.S. State And Local Government Credit Conditions Forecast, July 8, 2014
Institutional Framework Overview: Pennsylvania Local Governments, Sept. 12, 2013
S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013
Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings
affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use
the Ratings search box located in the left column.
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Summary: Chambersburg Borough, Pennsylvania; General Obligation
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