The bonds are expected to price via negotiated sale the week of
In addition, Fitch affirms the 'A' rating on approximately
The Rating Outlook is Stable.
The current issue and the series 2014A, 2013A&B, 2012, and 2011A&B bonds are general obligations of the city for which the city has pledged its full faith and credit and ad valorem tax, subject to the 2011 state statute limiting property tax increases to the lesser of 2% or an inflation factor (the tax cap law). This limit can be overridden by a 60% vote of the city legislature.
The city has pledged its full faith and credit and unlimited taxing power for debt service on outstanding GO bonds issued prior to these bonds. No exemption is made under the tax cap law for debt service on outstanding GO debt; however, the constitutionality of this provision has not been tested.
KEY RATING DRIVERS
REGIONAL ECONOMIC DRIVER: The city's economy is substantial and diverse, anchored by a major research university and health institutions and serving as the economic engine for the region. The city is currently benefiting from economic development activity.
FINANCES STABILIZE; RISKS REMAIN: The city has augmented its fund balance through one-time and recurring revenues to a level at which the city can sustain moderate deficits as projected over the next few years; however, little room for further revenue enhancements and expenditure cuts remain risks for the city's long-term financial profile.
BELOW-AVERAGE ECONOMIC PROFILE:
LONG-TERM LIABILITIES CHALLENGE BUDGET: Large pension and other post-employment benefits (OPEB) payments place pressure on recurring spending.
TAX LEVY LIMIT: The bonds are rated on par with outstanding ULTGO debt, since the city may exceed the state tax cap in any one year with 60% approval of the common council.
FALLING RESERVES: Fitch assumes the city will be able to reduce out-year budget gaps to a large degree. Should the city be unsuccessful, thus sustaining material operating deficits, there could be downward rating pressure. Upward movement is unlikely in the near term given operating pressures, including those posed by long-term liabilities, and weak economic indicators.
REGIONAL ECONOMIC ENGINE
The city serves as the economic center for the region and is anchored by higher education, healthcare and business services. Major employers include
About 50% of the city's property is tax-exempt, and the city is looking for ways to continue growing investments by the tax-exempts in the community and better monetize this activity. Several of the tax-exempts have signed service agreements with the city, highlighted by
The city is experiencing a degree of urban revitalization, including the opening of a third wing at
BELOW-AVERAGE ECONOMIC PROFILE
Economic indicators are depressed with per capita income levels at 59% of the state average and individual poverty rates more than double the state and national mean. The city unemployment rate was a high 7.2% in
RECENT SURPLUSES REVERSE TREND OF DEFICITS
The city experienced a structural imbalance which led to general fund balance draws from fiscal 2009 through fiscal 2011 (year end
The city beat its
The city did not repay outstanding revenue anticipation notes (RANs) until shortly after the end of the fiscal year, so the audited unrestricted fund balance is down
The city's unaudited 2013 results show a
The fiscal 2013 surplus will result in a
DEFICITS FORECASTED FOR 2014 AND BEYOND
The city's year-to-date fiscal 2014 performance is in an operating deficit position, consistent with the budgeted
The city is projecting deficits of
PENSION AND OPEB COSTS CREATE PRESSURES
The city is facing growing fixed costs in the form of pension and OPEB payments. The city's pensions are part of two cost-sharing multiple employer state systems, the
The city's general fund pension payments represent an increasing pressure from prior years, at
The city's fiscal 2013 OPEB payment was
ABOVE-AVERAGE DEBT BURDEN
The city's overall debt burden including overlapping debt is high at 8.7% of market value due primarily to weak real estate values. Debt appears more manageable on a per capita basis at
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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