03/25/2019 BOARD OF SELECTMEN Agenda Packet

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Summary: Mashpee Town, Massachusetts; General Obligation The town has $19 million of total direct debt outstanding. Officials expect to issue $4 million-$5 million in additional debt during the next two years for various townwide projects; we do not expect this to have a material effect on finances or debt. Mashpee's combined required pension and actual other-postemployment-benefit(OPEB) contribution totaled 7.8%of total governmental-fund expenditures in fiscal 2018: 3.9%represented required contributions to pension obligations and 3.9%represented OPEB payments. The town made its full annual required pension contribution in fiscal 2018. Mashpee contributes to Barnstable County Retirement System, a cost-sharing, multiple-employer, defined-benefit plan. Using updated reporting standards in accordance with Governmental Accounting Standards Board Statement Nos. 67 and 68, the town's proportionate share of the net pension liability was about$31.8 million, determined by an actuarial valuation,with a 61,86%funded ratio at Dec. 31, 2017,based on an assumed rate of return of 7.375%. We attribute this below-average funding ratio to numerous years of underfunding, aggressive assumptions, and weak market performance. Due to the low funding ratio,we believe contributions will likely continue to increase during the next few fiscal years. However,we expect the town will likely continue to manage these costs. Mashpee also provides OPEB to retirees;it has set up an OPEB trust to prefund this liability,which we view positively. At June 30, 2018, the most recent actuarial valuation,management reported a$62 million OPEB liability. The town's OPEB trust has a balance of$609,000. Officials expect to contribute $250,000 annually to the OPEB trust, Although funded ratios are low, due to additional tax-rate flexibility,we expect these costs will likely remain manageable during the next few fiscal years. Strong institutional framework The institutional framework score for Massachusetts municipalities is strong. Outlook The stable outlook reflects S&P Global Ratings' opinion Mashpee will likely maintain very strong reserves, supported by strong management.We believe Mashpee's local economic strength and location on Cape Cod further strengthen the rating.Therefore,we do not expect to change the rating within the two-year outlook period. However,we note growing pension costs related to weak pension funding could pressure the debt-and-contingent-liability profile. For now,budgetary performance and flexibility remain unaffected by long-term liabilities due largely to strong management and very strong budgetary flexibility. However, if management were to draw down reserves to maintain balanced operations due to this pressure,we could lower the rating. 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 • 2018 Update Of Institutional Framework For U.S. Local Governments }A..,'WW. F[kN[)Afif)ANDPO(.RS.(:Ok/l/fiAlINGSI'.)IRFCI MARCH 6, 2019 5