Both series are scheduled to sell via negotiation
In addition, Fitch affirms the following city debt:
The Rating Outlook is Stable.
The GOs and COs are secured by an ad valorem tax levied on all taxable property within the city, limited to
KEY RATING DRIVERS
ADEQUATE FINANCIAL RESERVES: The city's reserves are expected to remain adequate despite projections of a modest draw on reserves at fiscal 2014 year-end. Fitch recognizes that management's response to revenue fluctuations has been timely, but also notes that regaining budget balance has been somewhat dependent on temporary solutions.
ECONOMIC EXPANSION AND DIVERSIFICATION: Much of the city's economic activity has come from its position as a key NAFTA trade corridor near
HIGH OVERALL DEBT; GROWING FIXED COSTS: Overall debt levels are high relative to market values. Also, the pace of principal amortization is slightly below average. Fitch expresses concern over the city's underfunding of annual required contributions (ARC) and growing unfunded liability for the police and fire pension plans.
LARGE CAPITAL PLAN: The city's capital improvement plan (CIP) and debt issuance plans continue to increase in support of the city's ongoing growth-related needs and voter-approved quality of life projects. Balancing an increasing debt load with tax base growth and capital needs is essential to the rating given the already above-average debt service tax rate.
ESCALATING PENSION LIABILITY: Continued underfunding of the city's pension programs--particularly the public safety plan--will increase the liability of the city and would not be consistent with the current rating.
DETERIORATION OF RESERVES: Further reduction in the city's reserves or use of non-recurring means to achieve budget balance also could apply downward pressure to the rating.
SATISFACTORY FINANCIAL PROFILE DESPITE PROJECTED FISCAL 2014 DRAWDOWN
The city's financial position was affected by modest revenue contraction during the recession and ongoing growth-related operating and capital pressures. Through fiscal 2012, the city was able to make timely adjustments resulting in balanced operations amidst growing pressures. However, Fitch notes that one of these adjustments was underfunding of pension obligations, which has resulted in growing liabilities.
In fiscal 2013, the city drew down
The fiscal 2014 budget was adopted as balanced, incorporating the reduced taxable value of Western Refining. General fund spending increased 5.3% from the adopted fiscal 2013 budget, supported in part by a
Interim fiscal 2014 results point to a moderate revenue shortfall of
PRELIMINARY FISCAL 2015 BUDGET BALANCED
The fiscal 2015
City officials believe this budget generally contains more realistic revenue projections with the use of prior years' actual trends and a recently developed multi-year econometric forecast for the city's key revenue streams. Sales taxes are projected to grow to
TREND OF MODEST ANNUAL TAX BASE GROWTH RECEDES IN FISCAL 2015
Increases in the city's TAV slowed after double-digit annual percentage growth between fiscals 2005 and 2008. Slower growth beginning in fiscal 2009 was in line with weaker economic conditions nationwide, but gains resumed at 3% and 4% in fiscal years 2012 and 2013, respectively as economic conditions improved. Fiscal 2014 TAV grew modestly by 1.3% to
City officials indicate various retail and commercial development projects are underway throughout the city. Nonetheless, preliminary values for fiscal 2015 reflect a modest 2% decline, reversing prior years' trends. Management attributes much of the decline to the likely conservatism employed by appraisal district after a significant review of commercial values last year and reports values have remained generally stable through the protest process year to date. For purposes of capital planning and budgeting, the city has assumed a 1.5% annual growth rate in fiscal 2016 through fiscal 2018 followed by 2% annual growth through fiscal 2020. Fitch believes assumptions of a return to these levels of growth over the next five years are reasonable given historical TAV performance and recent development trends.
HIGH DEBT BURDEN AND LARGE CAPITAL PLAN
The area's growth-related capital pressures have led to a high overall debt burden relative to market value at nearly 8%, which is slightly more moderate on a per capita basis at roughly
Fitch believes the city will be challenged to balance ongoing capital needs against an already above-average debt service tax rate, slower tax base growth in the near term, and the area's below-average socio-economic characteristics.
ADEQUATE PENSION FUNDED LEVELS DESPITE UNDERFUNDING
The city maintains two single-employer pension plans: a city employee pension fund (CEPF) and a fire and police pension fund (FPPF).
The city issued
The city has contributed between 97% and 99% of its annual pension cost (APC) over the past three fiscal years for the CEPF. However, contributions to the fire and police divisions of the FPPF were about 10% and 25% below the APC respectively, in both fiscal years 2011 and 2012. For fiscal 2013 this gap increased; contributions for the fire and police divisions of the FPPF were 16% and 32% below the APC respectively. The actual funding contribution was relatively static, reflective of the city's rapidly growing pension costs. Pension payments totaled about 7.4% of audited fiscal 2013 governmental spending, compared to 9% had the city paid the required amount.
The city's underfunding is a credit concern, and continuation of this practice would not be consistent with the current 'AA' rating. The preliminary fiscal 2015 budget includes some funding for additional pension contribution according to management, although Fitch notes the budget is yet to be finalized by city council.
Public safety employees hired after
BALLPARK PROJECT NOT ESSENTIAL TO CORE OPERATIONS
Much of the city's economic activity has historically come from its position as a key NAFTA trade corridor near
Government and educational entities comprise most of the top 10 civilian employers, which provide roughly 25% of the area's employment. Major additions to the city's retail, commercial and healthcare sectors brought unemployment rates down to record lows in 2007 and 2008, although they rose notably during the last recession along with the national unemployment rate. The city's unemployment rate is down on a year-over-year basis to 6.4% in
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
Additional information is available at 'www.fitchratings.com'.
--'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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