In addition, Fitch withdraws the rating on the city's GO bonds series 2004A (all maturities) as these bonds have been pre-refunded.
The Negative Rating Outlook is maintained.
The bonds are general obligations of the city and backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY LIMITED: The Negative Outlook reflects Fitch's opinion that the city faces continued fiscal challenges and limited flexibility. Management has made progress in stabilizing its budget with successful negotiations with its unions, but reserve levels remain low and are not expected to increase materially in the near term as employee-driven costs pressure the budget and new tax base growth is slow to develop.
HIGH UNFUNDED FUTURE EMPLOYEE COSTS: Large unfunded pension and other post-employment benefit (OPEB) and internal service fund liabilities remain a burden and are expected to continue to pressure the budget. However, management has successfully negotiated higher health insurance contributions from its employees as well as the transfer of two of its pension plans for active employees to the state-operated plan, essentially requiring it to pay the full annual required contribution (ARC).
HEAVY DEPENDENCE ON STATE AID: The city budget relies heavily on state funding for education and payments in lieu of taxes for tax-exempt properties. State funding levels have been volatile in recent years but the outlook is positive for this coming fiscal year.
ABOVE-AVERAGE DEBT LEVELS: Overall debt ratios are above average, and carrying costs, which include debt service, pensions and OPEB, are moderate but expected to increase gradually over time.
WEAK SOCIOECONOMIC INDICATORS: Unemployment rates remain high and wealth levels are below average. City population has been increasing in the past decade, reversing a declining trend.
FINANCIAL PERFORMANCE: The city's ability to continue to manage its growing employee costs and maintain at least existing or better reserve levels (recognizing the fairly thin financial margin that these provide) could result in a revision in the Rating Outlook to Stable. Actions contrary to this could result in a downgrade.
DIVERSE ECONOMY OFFSET BY WEAK SOCIOECONOMIC INDICATORS
The city has a diverse economic base with the largest employers in health care, higher education, manufacturing, and financial services. However, historically high unemployment rates (averaging over 12% during 2009 through 2012) and below-average wealth levels have underscored weakness in the local economy. The most recent unemployment rate of 10.2% for April is down from 11.5% the prior year and reflects an improvement in jobs and labor force. Median household income in 2011 was 59% and 78% of the state and nation, respectively, and the poverty rate was an above-average 21.9%.
NEW DEVELOPMENT EXPECTED TO BOOST ECONOMY AND EMPLOYMENT
The city's new waterfront development project known as
FINANCIAL RESULTS SHOW SMALL SURPLUSES; RESERVE LEVELS REMAIN LOW
For fiscal 2013 the city reported a small general fund operating surplus of
General fund revenues are led by property taxes (53%) and are heavily reliant on state aid funding (43%). City property tax collection rates have improved with the institution of regular tax lien sales. Leading city expenditures are for education and personnel costs. Approximately 75% of the city school budget is funded by the state.
The adopted budget for 2014 included a small millage increase and used conservative state funding amounts. Management reports that there were no material changes in state aid and debt service savings were experienced as a result of last year's debt refunding. Management expects another modest surplus and increase in general fund balance.
LARGE INTERNAL SERVICE FUND DEFICIT IMPROVES
The city maintains an internal service fund to account for its self-insured health benefits which includes an actuarial estimate of liability for present and future workers' compensation claims. The fund continues to have a sizable deficit equal to
HIGH DEBT; CONTINUED LIQUIDITY NEEDS
Overall debt ratios are above average with debt-to-market value at 6% and debt per capita at
Since 2006, the city has issued between
SIGNIFICANT RETIREE OBLIGATIONS
The city administers four defined benefit pension plans for public safety, janitors and engineer employees. Other employees are covered under the state-operated
For fiscal 2012 the city obtained a continued state waiver from the full actuarially required contribution and the state approved a 24-year level 5% amortization of the unfunded liability. Annual contributions for 2012 equaled
The city, police and firefighters successfully negotiated a contract that transfers its active police and fire members to the state-administered MERF. The fire transfer was effective
The city funds it OPEB costs on a pay-go basis. As of
Total carrying costs for debt service, pension ARCs and OPEB pay-as-you-go totals a moderate 17.2% of total governmental spending for fiscal 2013. This ratio is expected to increase slightly as pension costs rise due to the low funded level of the city's Plan A.
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
- Congress Passes Law Promoting Transparency Reconstruction of Haiti
- Desktop, Laptop Setups Still King
- Four DC Comics Properties Brought to TV Get Comic-Con Event
- UFC Fight Night Sees Robbie Lawler Win Unanimous Decision
- Plan to Simplify 2015 Health Renewals May Backfire
- 'Guardians of the Galaxy ' Sequel Slated for 2017
- Execs Help Entrepreneurs, Get Chevy Volts
- Shania Twain's Vegas residency ending after 110 shows
- Google Confirms $1B Acquisition of Twitch.tv
- Demand for Fair Trade Brings Big Opportunity, Clear Conscience