(The following statement was released by the rating agency)NEW YORK, May 07 (Fitch) Fitch Ratings has affirmed its 'AA' rating on the following Town of Lincoln, RI (the town) general obligation (GO) bonds:--$26.1 million GO bonds, series 2006; --$1.5 million GO bonds, series 2003.The Rating Outlook is Stable.SECURITY The bonds are general obligations of the town backed by its full faith and credit and unlimited taxing authority.KEY RATING DRIVERSSTABLE FINANCIAL PERFORMANCE: The town has maintained a stable financial position over an extended period, reflecting a combination of careful expenditure management and conservative budgeting. Reserves are healthy for both the town and school department operations.SOUND SOCIOECONOMIC INDICATORS/DIVERSE ECONOMY: Residents exhibit high income levels and the unemployment rate, although elevated, is lower than the state average and continues to improve. The town's economic base is diverse, and commercial development is robust. MANAGEABLE DEBT LEVELS: Overall debt levels are low and are expected to remain so over the next couple of years. Pension and other post-employment benefit (OPEB) liabilities are manageable although Fitch considers funded ratios to be low.RATING SENSITIVITIESThe rating is sensitive to shifts in fundamental credit characteristics including the town's stable financial performance and healthy reserves. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.CREDIT PROFILEThe town of Lincoln is an affluent suburban community located five miles north of Providence (Rhode Island's capital). The town has a population of about 21,161, up 1.3% since 2000.DIVERSE ECONOMIC BASEThe town's tax base is largely residential (63% of assessed value  
  AV
  ) and the commercial/industrial base (23% of AV) is diverse.  Nonetheless, the 10 largest taxpayers make up an above-average 18% of the total fiscal 2013 tax levy. Twin River Casino leads the list at 5.6% of taxes paid, followed by Amica Insurance Company at 5.2%; both are paid pursuant to long-term tax stabilization agreements.AV dropped 6% in fiscal 2013 to $2 billion following a statutorily required three-year revaluation on Dec. 31, 2012.  The town increased the tax rate to offset the AV decline.  The decline comes after a 13.6% decline during the last revaluation in fiscal 2010. The continued decline reflects some economic softness in the state/region. Management is estimating a small increase in AV based on preliminary valuations for Dec. 31, 2013 and is assuming moderate and steady growth over the next couple of years. Fitch views this as feasible given residential and commercial development planned or underway, including an expansion of Hope Valley Industries and the relocation of a medical packaging company into the town.  HEALTHY SOCIOECONOMIC METRICSThe wealth levels of town residents have historically exceeded state and national averages. Median household income is 132% and 140% above the state and national averages, respectively. The December 2013 unemployment rate continues to recover, dropping to 7.8% from 8.3% the prior year. However, as with the state, much of this improvement is due to a large decline in the labor force.Major employers in the town are in diverse industries and include ACS Industries, a wire/cable manufacturing company (2,000 employees), Pharmacare Management Services (1,552 employees) and Amica Insurance Company (1,410 employees).STABLE FINANCIAL OPERATIONSTown operations benefit from strong institutionalized practices.  Management adheres to a policy of maintaining 8% of town operations as unassigned general fund balance. Furthermore, per town ordinance, budget surplus over the 8% fund balance level is transferred into the open space acquisition fund or capital projects fund. These funds help relieve general fund pressure as the town proactively performs periodic capital improvements on an as needed basis.The town's finances remain sound. The town generated a $281,183 general fund operating surplus after transfers in fiscal 2013 (less than 1% of spending), due to positive budgetary variances. The fiscal 2013 unrestricted general fund balance was $6.6 million or a healthy 9.4% of spending. The school department maintains its own budget and experienced a $1.4 million deficit in fiscal 2013 (3% of spending) due to the planned spending of surplus for school technology upgrades. The school department fund has a history of positive operating results, and a fund balance of $2 million remained at the end of the fiscal year, equivalent to an additional 3% of school and general fund spending.BALANCED OPERATIONS PROJECTED FOR FISCAL 2014Management has indicated that fiscal 2014 general fund balance levels will be consistent with fiscal 2013. Year-to-date expenditures are tracking slightly higher than budget due to unanticipated snow removal costs ($100,000) and a payment relating to a litigation settlement ($125,000). Partially offsetting this is better than budgeted revenue collections, which, combined with expenditure control, is projected to lead to balanced operations at fiscal year-end. VLT REVENUES SUPPORT OPERATIONS/CAPITAL PROJECTSIn accordance with state statute, the town receives a portion of video lottery terminal (VLT) commissions from Twin River Casino's operations. Management has prudently budgeted the same $5.2 million annually since fiscal 2009 for VLT commissions (7% of the fiscal 2013 general fund budget). Actual receipts have exceeded this amount for six consecutive years (receipts exceeded budget by $1.6 million in fiscal 2013). By town ordinance, this excess is transferred to the town's capital projects fund. In November 2012, the state's voters decided to permit expansion of casino operations to table games, making Twin Rivers Casino more competitive with Massachusetts casinos. However, a new casino in nearby Plainville, Massachusetts is expected to open in fiscal 2016.  Fitch does not expect any potential declines in VLT commissions to materially impact town operations in the near term due to management's conservative budgeting of this revenue.STRONG DEBT PROFILE The town's debt levels are low at $1,573 per capita and 1.2% of market value.  There is no overlapping debt.  Amortization is above-average with 67% of debt retiring within 10 years. Fitch expects the debt profile to remain low over the near term.  Future debt issuance is expected for fiscal 2017 or 2018, when existing debt matures. Plans for bond proceeds include high school campus renovations and road and sewer improvements.MANAGEABLE LONG-TERM LIABILITIES; LOW FUNDED RATIOSAll of the town's eligible employees are covered by one of four pension plans. One plan is operated by the town, another is a cost-sharing, multiple-employer plan operated through a union. The remaining two are state run plans (the state administered Employees' Retirement System (ERS) and the Municipal Employees' Retirement System (MERS)). The town plan's funded ratio is estimated at a low 56%, while the MERS plan (an agent, multiple-employer plan) funded ratio was estimated at 65% for the general employees unit and 61% for the police and fire unit using Fitch's more conservative 7% rate of return.The town established an OPEB trust in fiscal 2012 and contributed $1.6 million, or 115% of the annual required contribution in fiscal 2013. As of June 30, 2013, the unfunded OPEB liability was a moderate $14.9 million, assuming an 8% investment rate, or less than 1% of market value.Total carrying costs for debt service, pension annual required contribution, and OPEB equaled a very manageable 13% of government spending for fiscal 2013.Contact:Primary AnalystNicole WoodAssociate Director+1-212-908-0735Fitch Ratings, Inc.33 Whitehall StreetNew York, NY 10004Secondary AnalystKevin DolanDirector+1-212-908-0538Committee ChairpersonKaren RibbleSenior Director+1-415-732-5611Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com.Additional information is available at '
  www.fitchratings.com'.
 In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 14, 2012);--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).Applicable Criteria and Related Research: Tax-Supported Rating Criteria 
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
 U.S. Local Government Tax-Supported Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=829015
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