Summary

:
Holyoke, Massachusetts; General
Obligation; Non-School State
Programs
Primary Credit Analyst:
Christina Marin, Boston 617-530-8312; christina.marin@spglobal.com

Secondary Contact:
Victor M Medeiros, Boston (1) 617-530-8305; victor.medeiros@spglobal.com

Table Of Contents

Rationale

Outlook

Related Research

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Summary:
Holyoke, Massachusetts; General Obligation;
Non-School State Programs
Credit Profile
US$4.85 mil GO st qual rfdg bnds ser 2017 due 09/01/2027
Long Term Rating AA/Negative New
Underlying Rating for Credit Program A+/Stable New
Holyoke GO state qual rfdg bnds
Long Term Rating AA/Negative Affirmed
Underlying Rating for Credit Program A+/Stable Affirmed

Rationale
S&P Global Ratings has assigned its 'AA' long-term rating and 'A+' underlying rating to the City of Holyoke, Mass.'
general obligation (GO) refunding bonds. The outlook on the long-term rating is negative based on the outlook on the
State of Massachusetts, and the outlook on the underlying rating is stable.

The bonds are a full faith-and credit GO ad valorem pledge of Holyoke, subject to Proposition 2 1/2 limitations.
Despite the limitations imposed by the state levy limit law, we did not make a rating distinction for the limited-tax GO
pledge given the city's reserves and budgetary flexibility under the levy cap.

We base the 'AA' long-term rating on the bonds' eligibility under the commonwealth's Chapter 44A Qualified Bond
Act. The Massachusetts' Municipal Finance Oversight Board has authorized the city to issue bonds or notes as
commonwealth-qualified bonds. Under the Qualified Bond Act, the state treasurer pays debt service directly to the
paying agent and withholds the amount of the payment from the borrower's annual state aid appropriation.

We understand that proceeds of the bonds will be used to refund 2007 bonds for a net present value savings of
$438,717.

We base the underlying rating on our assessment of the following factors for the city:

• Weak economy, with projected per capita effective buying income at 69.9% and market value per capita of $52,092,
but that is advantageously gaining from access to a broad and diverse metropolitan statistical area (MSA);
• Adequate management, with "standard" financial policies and practices under our financial management assessment
(FMA) methodology;
• Strong budgetary performance, with a slight operating deficit in the general fund but break-even operating results at
the total governmental fund level in fiscal 2015;
• Strong budgetary flexibility, with an available fund balance in fiscal 2015 of 14.1% of operating expenditures;
• Strong liquidity, with total government available cash at 6.2% of total governmental fund expenditures and 2.5x
governmental debt service, and access to external liquidity we consider strong;
• Adequate debt and contingent liability position, with debt service carrying charges at 2.4% of expenditures and net

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Summary: Holyoke, Massachusetts; General Obligation; Non-School State Programs

direct debt that is 33.0% of total governmental fund revenue, as well as low overall net debt at less than 3% of
market value, but a large pension and other postemployment benefit (OPEB) obligation and the lack of a plan to
sufficiently address the obligation;
• and Strong institutional framework score.

Weak economy
We consider Holyoke's economy weak. The city, with an estimated population of 40,107, is located in Hampden
County in the Springfield MSA, which we consider to be broad and diverse. The city has a projected per capita
effective buying income of 69.9% of the national level and per capita market value of $52,405. Overall, the city's
market value was stable over the past year at $2.1 billion in 2017. The county unemployment rate was 6.8% in 2015.

The city is in Hampden County, 8 miles northwest of Springfield and 97 miles west of Boston. The tax base is 72%
residential, and 28% commercial and industrial. The city's local economy is centered on manufacturing (primarily
paper-related), health care, and retail. Leading employers include the Holyoke Mall at Ingleside (3,400 employees
off-peak), Holyoke Medical Center, and Holyoke Community College.

City officials report that the Holyoke Mall continues to operate near-capacity and has not experienced the same loss of
tenants as malls across the country. Several stores have recently renewed their leases and property values around the
mall are improving. The city is also reporting the development of several brownfield and greenfield sites, the
expansion of a Hyundai dealership, and the opening of new restaurants and stores associated within Ingleside Square
that, taken together, should contribute to an expanded tax base overtime.

In 2014, the Mt. Tom Generating Co.--Holyoke's fifth-largest taxpayer--ceased operations for financial reasons,
resulting in an annual net revenue loss to the city of $1.7 million. Although the closure and lost revenue put some
financial strain on the city, officials expect tax revenues to rebound over the next few years because of new economic
development. However, given the challenges Holyoke faces as an old manufacturing city and the loss of jobs over the
past three decades, we expect our assessment of the economy to remain weak, at least in the near term.

Adequate management conditions
We view the city's management as adequate, with "standard" financial policies and practices under our FMA
methodology, indicating the finance department maintains adequate policies in some but not all key areas.

Holyoke is governed by a mayor-council form of government. City officials are conservative in their revenue and
expenditure assumptions, and reference six years of historical data in developing the budget. Holyoke does not do any
long-range financial planning, but management is creating a five-year plan to complement the annual budget process
based on the aforementioned historical data. City officials regularly monitor budgetary performance, ensuring
adjustments are made in a timely manner. Budget-to actuals are reported monthly. Management maintains an informal
reserve policy of sustaining an unassigned fund balance of 7.5%-10.0% of expenditures. Holyoke also maintains its
own investment policy that adheres to state guidelines, and officials monitor investment performance on a monthly
basis. The city does not have a debt management policy.

Strong budgetary performance
Holyoke's budgetary performance is strong in our opinion. The city had slight deficit operating results in the general
fund of 0.6% of expenditures, but a balanced result across all governmental funds of 0.1% in fiscal 2015.

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In our analysis of budgetary performance, we adjust for recurring transfers out of the general fund to the sewer fund.
The slight deficit in 2015 is a result of the loss in revenue associated with the power plant closure. In response,
management has worked on tightening the budget, making assumptions more accurate and reducing large, built-in
contingencies.

City officials report positive operating results in 2016 due to unfilled positions. The 2017 budget totals $143 million
and, according to city officials, operating results are trending on budget. We believe Holyoke is somewhat susceptible
to declines in state aid, as intergovernmental revenues account for 58% of total governmental fund revenues; however,
state revenues have been stable recently. Property taxes constitute 36% of revenues, and collections have improved to
98%.

In April 2015, the state Board of Elementary and Secondary Education placed the Holyoke Public Schools into
receivership due to chronic academic underperformance. The state designated an external superintendent who
assumed the responsibilities of the district superintendent and school committee, reporting directly to the
Commissioner of the Department of Elementary and Secondary Education. Under the statute, the state is now tasked
with developing a plan to accelerate achievement and improve outcomes for all students in all schools.

According to city officials, there has been little impact on Holyoke's finances of the receivership. The school budget is
primarily dictated by state per pupil spending guidelines, so the schools budget accordingly, and have lived within
those means. According to Holyoke's auditor, communication between the school and city is frequent with weekly
meetings between the city and school. At this time, we do not expect the school receivership to result in deteriorated
financial performance or to negatively impact credit conditions.

We expect Holyoke to remain structurally balanced and operating results to remain break-even or better based on past
performance. Therefore, over our two-year outlook horizon, we anticipate that our assessment of the city's budgetary
performance will remain strong.

Strong budget flexibility
Holyoke's budgetary flexibility is strong, in our view, with an available fund balance in fiscal 2015 of 14.1% of
operating expenditures, or $20.1 million.

Reserves have declined from previous "very strong" levels as a result of lost revenue associated with the power plant
closure, and general budget tightening. Management indicates that reserves will likely remain level over the next few
years, until new economic development projects can contribute to a stronger tax base.

Strong liquidity
In our opinion, Holyoke's liquidity is strong, with total government available cash at 6.2% of total governmental fund
expenditures and 2.5x governmental debt service in 2015. In our view, the city has strong access to external liquidity if
necessary.

Holyoke is a regular market participant, having issued GO bonds frequently over the past several years. We
understand the city has not entered into any bank loans, direct-purchase debt, or contingent liquidity risks from
financial instruments with payment provisions that change upon the occurrence of certain events. It has consistently
had very strong liquidity and we do not anticipate a change to these ratios, consistent with our view of Holyoke's

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strong performance.

Adequate debt and contingent liability profile
In our view, Holyoke's debt and contingent liability profile is adequate. Total governmental fund debt service is 2.4%
of total governmental fund expenditures, and net direct debt is 33.0% of total governmental fund revenue. Overall net
debt is low at 2.8% of market value, which is in our view a positive credit factor.

Following this issue, Holyoke will have about $87.3 million of total direct debt outstanding. Of that amount, we
calculate $2.2 million to be self-supporting through user charges from the city's sewer enterprise fund and $27 million
to be self-supporting through the gas and electric enterprise. We understand the city plans to issue an additional $3.5
million over the next two years for police radios and swimming pool repair.

In our opinion, a credit weakness is Holyoke's large pension and OPEB obligation, without a plan in place that we
think will sufficiently address the obligation. The city's combined required pension and actual OPEB contributions
totaled 11.0% of total governmental fund expenditures in 2015. Of that amount, 6.9% represented required
contributions to pension obligations, and 4.1% represented OPEB payments.

The city contributes to the Holyoke Contributory Retirement System, a cost-sharing, multi-employer, defined-benefit
pension plan with a net pension liability of $148 million. The city's proportional share of the net pension liability,
excluding the gas and electrical and water departments is $103.7 million. The plan is 63% funded, and the city pays
100% of its actuarial determined amount. Holyoke is on schedule to fully fund the pension plan by 2032. It contributed
$10.1 million in 2015 and $11.7 million in fiscal 2014. The city also participates in the Massachusetts Teachers'
Retirement System, for which the 2014 expense of $7.4 million was covered by the state.

The OPEB unfunded actuarial accrued liability is $212.6 million, with a 0% funded ratio. Holyoke pays this liability on
a pay-as-you go basis. For fiscal 2015, the city contributed $14 million. Holyoke continues to explore ways to both
lower the liability and to also set up a trust fund and begin funding it.

Strong Institutional framework
We consider the institutional framework scorefor Massachusetts cities as strong.

Outlook
The negative outlook on the program rating reflects our negative outlook on the commonwealth.

The stable outlook on the underlying rating reflects Holyoke's strong reserve levels and our expectation that
management will maintain at least adequate financial performance in the near term. It also reflects the city's improving
area economy, which will likely translate into a stronger local tax base over time. Based on a confluence of these
factors, we do not expect to change the rating within our two-year outlook horizon.

Upside scenario
If management is able to implement and institutionalize more formal financial policies and practices, as well as address
the fixed costs associated with its long-term liabilities, we could raise the rating.

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Downside scenario
We could lower the rating if Holyoke's budgetary performance or reserves decline significantly due to revenue
pressures resulting from state aid cuts or significant fixed cost growth associated with long-term liabilities.

Related Research
• S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013
• Incorporating GASB 67 And 68: Evaluating Pension/OPEB Obligations Under Standard & Poor's U.S. Local
Government GO Criteria, Sept. 2, 2015
• 2016 Update Of Institutional Framework For U.S. Local Governments

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria.
Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is
available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can
be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box
located in the left column.

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