The bonds are expected to sell via negotiated sale the week of
In addition, Fitch downgrades from 'AA' to 'AA-' the rating on the district's outstanding LTGO and unlimited tax general obligation (ULTGO) bonds.
The Rating Outlook is revised from Negative to Stable.
LTGO Bonds - General obligations of the district payable from ad valorem taxes levied without limitation as to rate but limited as to amount by provisions of the statewide Limitation Law on all taxable property within the boundaries of the district.
ULTGO Bonds - General obligations of the district, payable from ad valorem taxes, unlimited as to rate or amount.
KEY RATING DRIVERS
PENSION REFORM APPROVED: The Stable Outlook reflects the state's approval of a revised pension funding formula for the district that materially improves the district's pension outlook from the previously projected asset depletion date of 2023.
NEW PLAN NOT WITHOUT RISK: The downgrade largely reflects statutory rather than actuarial funding under the new plan. Though reforms should gradually reduce the unfunded liability, a sustained period of poor market returns would reverse funding progress given the limited ability to increase funding. The low funding level of the plan makes this risk even more acute.
LIMITED PURPOSE; STRONG FINANCES: The 'AA-' rating indicates high credit quality reflecting the district's limited purpose and inherent expenditure flexibility. The district maintains strong reserves supported by conservative fiscal management and budgeting.
DIVERSE AND STABLE SERVICE AREA: The city of
PRESSURED OVERLAPPING ENTITIES: The district's overlapping entities, particularly the
CHANGES IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The district was created in 1934 with a tax base coterminous with the city of
PENSIONS REFORM EXPECTED TO IMPROVE PLAN FUNDING
The district maintains a single-employer defined pension plan that is governed by state law. Pension costs are currently funded according to the minimum statutory requirement which is substantially below the ARC. Employees contribute a percentage of their salaries, and the district contributes a fixed multiplier of the employee contributions.
The statutory payment amount as of
The plan calls for
Fitch believes the revised funding plan should put the pension plan in a materially better funding position than it was prior to the passing of legislation. However, the new plan faces two challenges. First, litigation challenging the new plan by a beneficiary who believes their benefits have been unlawfully impaired could delay or cancel implementation. Thus far, no suits have been filed.
Secondly, contributions continue to be calculated on a statutory, rather than an actuarial basis. With that, the plan will be challenged to recover from large investment losses as there is no method to adjust contribution levels. However, Fitch believes the increased contribution levels and other changes to the plan materially improve the plan's ability to withstand such a stress, compared to the prior funding plan.
OVERLAPPING ENTITIES ALSO FACE CHALLENGES
The district receives almost 60% of its general fund revenues from property taxes. The largest taxing bodies that overlap with the district,
Fitch believes it will be politically challenging for all of these issuers to simultaneously raise taxes to fully support operations, further pressuring the district. Additionally, though the district is independent of the city, its board is appointed by the city and Fitch is concerned that pressure could be exerted on the district to let the city's needs trump those of the district.
The district's property tax levy makes up only about 6% of the total tax bill for a
RECURRING SURPLUSES IMPROVE FINANCIAL FLEXIBILITY
The district completed 2012 with its fourth consecutive operating surplus (after transfers), adding
Unaudited 2013 results show an operating deficit of approximately
The 2014 budget is balanced and the district reports no major variances to date. The district continues to implement new revenue enhancing initiatives and closely manage expenditures while continuing its core mission of increasing service offerings to residents.
The district has prudently identified sources to pay for elevated recurring pension costs beginning in 2015, including debt service savings, personal property replacement taxes and other revenues, and organizational efficiencies. Given the district's limited purpose, Fitch believes it has greater expenditure flexibility than most full-service governments. Specifically, the district's ability to delay or cut projects from its capital plan and reduce staffing, approximately half of which is part time, is inherently greater than other governmental entities.
ELEVATED BUT MANAGEABLE DEBT LEVELS
The district's debt position is manageable, with a mix of limited and unlimited tax GO debt, as well as alternative revenue-source bonds. Debt service has a relatively high claim on resources, accounting for 21% of 2012 expenditures, which is not unusual for capital intensive special districts.
The district's overall debt level is above average, reflective of substantial borrowing by overlapping jurisdictions. Debt amortization is average with 45% of debt retired in 10 years. The district's five-year capital plan anticipates approximately
The district has minimal other post-employment benefit (OPEB) costs for retired employees. Total carrying costs for pension, debt service and OPEB in 2012 were a moderate 20% of government fund expenditures. Assuming the district had paid its full pension ARC rather than the statutory payment, carrying costs increase to almost 24% of expenses. Importantly, and consistent with other limited purpose entities, debt service costs make up the majority of carrying costs. Debt service totaled 20% of fiscal 2012 spending, or 2.75x the pension ARC, which was 7% of spending. Fitch believes the district is relatively well positioned to adjust its budget to meet the incremental increase to reach the new statutory payment requirement.
The service area remains a strong and diverse center of economic activity although the recession has resulted in some stress. Job losses in the financial services, construction, and manufacturing sectors are reflected in the city's above-average unemployment rate. For the month of
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', dated
--'U.S. Local Government Tax-Supported Rating Criteria', dated
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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