News Column

Fitch Affirms Grand Blanc Township, MI LTGOs at 'AA-'; Outlook Stable

May 28, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following Grand Blanc Township, MI bonds at 'AA-':

--$9.6 million limited tax general obligation (LTGO) capital improvement bonds.

Fitch also has affirmed the 'AA' implied unlimited tax general obligation (ULTGO) rating for the township.

The Rating Outlook is revised to Stable from Negative.

SECURITY

The LTGO bonds are secured by the township's full faith and credit and its ad valorem tax pledge, subject to applicable charter, statutory and constitutional limitations.

KEY RATING DRIVERS

STABILIZING VALUATIONS: After several years of sizeable declines in taxable value (TV), levels have stabilized with growth in the current year and further growth projected.

STABLE RESERVES DESPITE ECONOMIC PRESSURE: Conservative financial management has resulted in positive operating results and stable fund balance levels despite recent recessionary pressures.

MANAGEABLE LONG-TERM OBLIGATIONS: The township maintains a moderate debt burden. Combined debt service, pension and other post-employment benefit (OPEB) costs are average as a percentage of governmental expenditures, although increases in funding requirements for the poorly funded pension plan could increase this burden.

DISTINCTION BETWEEN ULTGO AND LTGO: Fitch believes the township's inability to raise its property tax rate and limited ability to capture TV growth warrants a one notch distinction between the implied ULTGO and LTGO ratings.

RATING SENSITIVITIES

DECLINES IN TV: Further deterioration in TV could lead to the need to use reserves or other non-recurring measures to balance the budget, which could negatively impact the rating.

CREDIT PROFILE

Located in Genesee County, Grand Blanc Township is about 60 miles northwest of Detroit. The 2010 census reports a robust population gain of approximately 25% to 36,534 for the township; in contrast, the state lost 0.6% of its population during the last decade and was the only state in the nation to lose population.

ABOVE AVERAGE ECONOMIC FACTORS

The local economy is anchored by the Genesys Health System, which is a member of Ascension Health (rated 'AA+', Stable Outlook by Fitch) and is the township's top employer. The health system continues to invest in an extensive expansion plan, suggesting a long-term commitment to the community. The local economy also benefits from significant growth by Magna Electronics and several other new and existing businesses. The township has also experienced recent growth in residential construction and home prices.

General Motors (GM) is the township's second largest taxpayer. It planned to close one of its two facilities in the township, but instead decided to use it for storage, dramatically reducing the number of employees in the short term but with plans to return to past employment levels in the longer term. Management reports that the other GM facility is stable. Wealth levels in the area remain above average with median household income at 125% and 115% of the state and national averages, respectively.

TAXBASE VALUATION DECLINES END

After several years of large declines, TV apparently has stabilized. TV was down a cumulative 23% from 2008 to 2012. After a nominal decline in 2013, TV is up 1.8% in the current year. Management expects TV to continue to grow, which Fitch views as reasonable given current economic development activity and increases in home prices.

CONSISTENT FINANCIAL PERFORMANCE DESPITE CONSTRAINTS

Property tax revenue is the township's largest revenue source at approximately 61% of the total, which makes TV changes particularly important. The township's tax rate is currently at the maximum under the Headlee amendment, which limits future revenue raising flexibility. The township board has no plans to seek a Headlee amendment override at this time. Voters overwhelmingly approved a 0.5 mill levy increase for fire protection in 2010, but this success does not necessarily mean voters would approve other proposed levy increases.

The township's second largest funding source is state-shared revenue (24%). There was a small decline in this source from 2011 to 2012, but the township expects a small increase in 2014.

In 2012 both general fund revenues and expenditures were under budget. Expenses were kept down through turnover due to attrition, increased labor contributions for health care, and close expense management. The township prudently allocated $400,000 to the capital projects fund. The township finished the year with a $36,000 general fund surplus. The ending unrestricted balance was $1.74 million or 13.5% of general fund expenditures, within the township's policy guidelines of 12% to 15%. This performance was an improvement over 2011, which saw a modest $121,000 draw on reserves.

The township expects to finish 2013 with another surplus of approximately $150,000 after adopting a balanced budget. Close expenditure management again led to the expected surplus. Management reports current financial performance in 2014 is on target, with an expectation for balanced results.

MANANGEABLE DEBT BURDEN; UNDERFUNDED PENSION

The township contributes to the Michigan Municipal Employees Retirement System (MERS), as well as a separate defined contribution plan. Total pension expenses were $797,000 in 2012 and the MERS contribution rose 7% in 2013, with a similar increase expected for 2014. Annual required contributions are regularly funded at 100%, although the MERS plan was only 56.8% funded as of Dec. 31, 2012 (based on the 8% discount rate assumed by the township). Using a more conservative 7% return rate assumption the plan is even weaker at an estimated 51.2% funded.

OPEB is generally funded on a pay-go basis, although the township has also been prudently pre-funding its OPEB obligation; its OPEB trust had a balance of $4.2 million at the end of 2013. In 2013, the township's pay-go OPEB cost was $503,000. As of Dec. 31, 2011, the OPEB unfunded actuarial liability of $9.5 million was modest at less than 1% of total market value.

The township's overall debt burden is in the moderate range at $2,540 per capita and 4.2% of market value, and there are no immediate plans for additional debt. The bulk on the overall debt burden is overlapping school debt. Principal amortization is average with 52% of the total outstanding debt retired within 10 years. The township maintains a five year capital improvement plan, which it funds largely on a pay-go basis. The township's combined carrying costs for debt service, pension and OPEB were a moderate 18% of 2012 governmental fund spending, although Fitch believes they are vulnerable to further increases to improve pension funding.

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, National Association of Realtors, and Financial Advisor.

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=832000

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Eric Friedman

Director

+1-212-908-9181

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Bernhard Fischer

Director

+1-212-908-9167

or

Committee Chairperson

Steve Murray

Senior Director

+1-512-215-3729

or

Media Relations

Elizabeth Fogerty, New York, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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