--Implied unlimited tax general obligation (ULTGO) bond rating at 'AA';
The Rating Outlook remains Negative.
The LTGO building authority and downtown development bonds all carry the city's full faith and credit and its ad valorem tax, subject to constitutional, charter and statutory limitations.
KEY RATING DRIVERS
OUTLOOK REMAINS NEGATIVE: The Negative Outlook reflects the city's continued challenges in restoring and maintaining structural balance in the face of tax base deterioration, lower state revenues, own-source revenue limitations, and forward spending pressures.
LTGO RATING DIFFERENTIAL: The rating differential between the implied ULGO rating and the LTGO bonds reflects the city's limited financial flexibility and the lack of available taxing margin for operations.
REGIONAL CENTER; BELOW AVERAGE INDICES: The local economy remains highly dependent on manufacturing but is stabilized by the presence of higher education and healthcare. Per capita wealth levels are below average and the local unemployment rate is above average.
MODEST DEBT BURDEN; OVERFUNDED PENSIONS: The debt burden is modest, principal amortization is rapid, and future debt requirements appear manageable. The city's pension plan is over-funded, but its other post-employment benefit (OPEB) obligation is sizable.
RETURN TO STRUCTURAL BALANCE: The ratings and Outlook are sensitive to the city achieving structural balance, as evidenced by its ability to stabilize the unrestricted general fund balance without resorting to non-recurring means.
UNEVEN FINANCIAL PERFORMANCE; STRUCTURAL IMBALANCE
The city's financial performance has been uneven historically, although adequate reserves still remain. Recent years have shown operating deficits predominantly. Fitch believes the city's ability to control spending is key to maintaining its current cushion as its revenue base is somewhat limited. The city's fiscal 2011 revenue composition includes 58% from property taxes and 17% from intergovernmental sources. The city is currently levying at its tax cap, and has no immediate plans to seek a voter override which would free up additional taxing capacity.
In 2012 and 2013, the city implemented cost efficiencies and a 'strategic alignment plan,' which resulted in an overall headcount reduction of 12% through 2013, in an attempt to align its spending base with new, lowered revenues. Management estimates it has realized approximately
Performance in 2012 beat budget, reducing use of fund balance to
Fitch estimates that the city's structural gap is approximately
The city has effectively managed down its annual liquidity borrowing from
The city's financial forecast is balanced but relies on unidentified spending cuts that ultimately rise to
Fitch believes that the decision to forward fund the OPEB liability and continued cash-funding of capital at a healthy level (5% of general fund spending in 2012) provides an important measure of expenditure flexibility. Absent organic growth in revenue Fitch thinks that the city will remain challenged to achieve consistent positive margins given its limited revenue flexibility.
TAX BASE DECLINES MODERATE
The city's tax base declines have moderated, with a small 0.2% loss in 2014 signaling possible stabilization. Nevertheless, the tax base has declined an aggregate 14.7% since 2008, pressuring operations as the city is at its maximum operating rate. The city is projecting minimal tax base growth for 2015 and after, which could widen the structural gap if not realized.
REGIONAL CENTER; BELOW-AVERAGE SOCIOECONOMIC INDICATORS
The city is a regional economic and population center for south-west
Socioeconomic indicators are below average, with per capita income levels at 72% and 65% of the state and national averages, respectively, although these may be marginally skewed by a large student population. The city's education levels are above average, with 34% holding a bachelor's degree, compared with 28% for the nation. The individual poverty rate is well above average at 242% of the national.
Unemployment is elevated at 8.6 as of
MODEST LONG-TERM OBLIGATIONS
The overall debt burden is slightly above average at 5.1% of market value or
The city provides employment benefits through a single-employer defined benefit pension plan that was overfunded at 120% in 2012 or an estimated 113% using Fitch's 7% investment return assumption. The city continues to make contributions to the fund to hold it harmless for actuarial changes due to its early retirement incentive program.
The city funds its OPEB obligation on a pay-go basis, with a payment of
The city's carrying costs for debt service, pension, and OPEB was moderate at 20% of governmental fund spending.
LTGO PLEDGE; DEBT REPAID FROM NON-GF SOURCES
The building authority bonds are secured by cash rentals under the lease between the authority and the city. The cash rentals constitute the city's full faith and credit and its ad valorem tax, subject to constitutional, charter and statutory limitations. Payment under the lease is not subject to annual appropriation nor setoff or abatement for any cause. Therefore, the rating is on par with the city's LTGO rating.
The downtown development bonds carry the city's LTGO pledge but are also secured by a pledge of tax increment revenues generated within the development area. Tax increment revenues are the intended source of repayment and provide at least sum sufficient debt service coverage, however, Fitch's rating is based upon the strength of the city's LTGO pledge.
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
Most Popular Stories
- Hernandez lawyer: Pats Records Dispute Resolved
- Congress Leaving Town as Deadlines Loom
- Oregon Voters to Decide on Recreational Pot
- 4th Circuit Upholds Obamacare Subsidies
- Oregon to Vote on Recreational Marijuana
- Fiat, Renault Strike Deal on New Light Vehicle
- A's Agree to 10-Year Lease to Stay in Oakland
- Senate, House Locking Horns on Border Funds
- LinkedIn to Buy Ad Tech Company Bizo for $175 Million
- Jeter, Bauer Give Fox a Strong Week in TV Ratings