--Implied unlimited tax general obligation (ULTGO) at 'AAA'.
The Rating Outlook is Stable.
All series are special obligations of the city, subject to annual appropriation. The bonds are not secured by a leasehold interest in or mortgage of the respective projects. The series 2012C and series 2012E bonds are not secured by a debt service reserve fund (DSRF); all other outstanding series are secured by a cash-funded DSRF.
In addition to the annual appropriation requirement, the series 2012D bonds are also secured by surplus electric utility net revenues after payment of any water and electric revenue bonds and other required deposits pursuant to ordinance.
KEY RATING DRIVERS
APPROPRIATION RISK: The 'AA' rating on the special obligation bonds reflects the city's 'AAA' implied ULTGO bond rating as well as the appropriation risk and lack of security interest in the projects.
SOLID FINANCIAL POSITION; DIVERSE REVENUES: The city's financial position benefits from diverse revenues, strong reserve levels and balanced operations.
STRONG MANAGEMENT PRACTICES: The city's strong management team has demonstrated a commendable record of proactive fiscal operations and conservative budgeting practices which have provided the city with ample financial flexibility.
FAVORABLE DEBT POSITION: The majority of the city's direct debt is supported from enterprise funds and is amortized rapidly, though overall debt is high.
DIVERSE ECONOMIC BASE: The implied ULTGO rating reflects a diverse and growing economic base anchored by a university community.
WEAK PENSION FUNDING: The city's pension plans are underfunded, with funding levels decreased from the previous review. Changes in plans for new employees and full funding of the annual required contribution (ARC) should help to improve the funding level.
CHANGES TO CREDIT FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the strong financial performance and a stable local economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The city of
PAYMENTS SUBJECT TO APPROPRIATION BUT PAID FROM ENTERPRISE REVENUES
Fitch's rating on the bonds reflects the city's strong overall credit profile, appropriation risk, and the lack of security interest in the asset. City ordinance requires the city manager to include in each annual budget an appropriation of the amount necessary to pay debt service on its special obligation bonds in the next fiscal year and to take any further action that may be necessary to assure the availability of money appropriated to pay the debt service. The city has issued multiple series of special obligation bonds with payments subject to appropriation but which in fact are paid from enterprise net revenues.
The city's series 2012D bonds do include an additional security of surplus net revenues from the city's water and electric system after payment of any senior revenue bonds and any required reserve fund or renewal and replacement deposits. Pursuant to ordinance, the city has covenanted to charge electric utility rates sufficient to pay senior lien revenue bonds and debt service on the 2012D bonds by 110%. In fiscal 2013, water and electric revenues provided approximately 2.3 times coverage on combined senior lien and appropriation backed bonds. Fitch views the reliance on utility revenues for debt service as a credit neutral factor given the strength of the utility operations and the clear way in which utility rates are set to provide ample coverage and a fixed level of general fund support.
FAVORABLE ECONOMIC UNDERPINNINGS
The city benefits from a diverse economic base which includes a mix of government, education, health care, and financial services. The city is home to the main campus of the
Unemployment in the city remains well below average at 3.5% as of
STRONG GENERAL FUND FINANCIAL PERFORMANCE
The city's general fund financial position remains strong, with fiscal 2012 marking the third consecutive year of operating surpluses after transfers. The fiscal 2012 surplus was
Results for fiscal 2013 are better than budgeted. The city ended fiscal 2013 with a small draw on general fund balance instead of using
DIVERSE REVENUE BASE OFFSETS PROPERTY TAX LIMITATION
General fund revenue sources are diverse with sales tax accounting for 27% of total revenues, other local taxes at 16% and property taxes at 9% in 2012. Sales and other taxes have performed consistently over the past five years and sales tax was up notably in 2012 by 4.8%, with preliminary results indicating strong performance for 2013 as well.
Assessed values in the city have risen in each year since at least fiscal 2006. The current property tax rate of
The city receives significant general fund support from payments in-lieu of taxes (PILOT) paid by the city-owned water and electric utility (the system). The PILOT was
LOW DEBT BURDEN
The city's total overall net burden is low at approximately at 2.6% of market value or
PENSION CHANGES WILL HELP BELOW-AVERAGE PENSION FUNDING
The city's single employer pension plans for fire and police are significantly underfunded at an estimated 50% for both plans using Fitch's 7% discount rate assumption despite a history of 100% funding of the city's annual required contribution (ARC). The city additionally participates in the
The city recently made changes to its pension and other post-employment benefit (OPEB) funding, including reducing benefits for employees hired after
The following outstanding special obligation bonds of the city are affirmed at 'AA':
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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