The bonds are expected to price via competitive 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&B, 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, the limited flexibility for further revenue enhancements and expenditure cuts remains a risk 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 and sustain 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 better monetize the activity of these tax-exempt organizations. Several of the tax-exempts have signed service agreements with the city, highlighted by
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's unemployment rate was 7.5% 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's fiscal 2013 results show a
Positive state highway aid and sales and property tax performance as well as conservative budgeting of staffing allowed the city to outperform its fiscal 2013 operating budget, which was break-even with the inclusion of the spin-up payment. The fiscal 2013 surplus and the release of the restricted funds from fiscal 2012 results in a
DEFICITS FORECASTED FOR 2014 AND BEYOND
The city's fiscal 2014 budget assumed an
The city is projecting annual deficits of
PENSION AND OPEB COSTS CREATE PRESSURES
The city faces elevated 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 made up a high 12.7% of spending in fiscal 2013. The payment for fiscal 2014 is expected to decline, with another small decline forecasted for fiscal 2015 and going forward, so pensions are expected to be less of a pressure for the city. The state has offered municipalities the opportunity to amortize part of their payments, but the city does not plan to do so.
The city's fiscal 2013 OPEB payment was
ABOVE-AVERAGE DEBT BURDEN
The city's overall debt burden including overlapping debt is high at 8.8% 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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