The bonds and notes are scheduled to sell via negotiation during the week of
In addition, Fitch affirms the following ratings:
The Rating Outlook is Stable.
The limited tax bonds, COs, and tax notes are secured by an annual property tax levy, limited to
The contract revenue bonds are special obligations of the
The MFC lease revenue bonds are secured by annually appropriated lease payments made by the city to the MFC.
The PFC lease revenue bonds are secured by annually appropriated lease payments made by the city to the PFC.
KEY RATING DRIVERS
STRONG FINANCIAL FLEXIBILITY:
MIXED DEBT PROFILE; LARGE CAPITAL PLANS: The city's debt profile is mixed, characterized by a high overall debt burden, balanced against moderately rapid limited tax bond amortization and ample and growing debt service capacity within the current tax rate. The city's capital plan is aggressive but will allow the city to address its sizeable deferred capital needs.
MILITARY REMAINS KEY SECTOR: Although the local economy has diversified notably, the military remains a major economic factor. This is evidenced by very large recent investments and additions to troop strength resulting from base realignment and closure decisions that have benefited the city.
STABLE ECONOMY: The recessionary contraction of the local economy has reversed course and the city's unemployment rate continues to be well below state and national averages. Population growth remains rapid, aided by affordable home prices and ample developable land.
HIGH STARBRIGHT DEBT SERVICE COVERAGE: CPS (electric and gas system revenue bonds rated 'AA+' by Fitch) payments to the city provide very high debt service coverage for the Starbright IDC's contract revenue bonds. Additionally, the sources of the electric and gas payments to the city are considered strong, the bonds' contract terms and legal covenants are sound and no additional leveraging is planned.
PFC LEASE REVENUE BOND DIFFERENTIAL: Although important to the city's economy, the leased asset (the convention center) financed by the city's PFC lease revenue bonds is not considered essential to the city's core governmental operations according to Fitch Ratings' published criteria. Its non-essential nature leads to a two-notch distinction between the PFC lease revenue bonds and the city's limited tax bonds.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong, albeit reduced, financial reserves. Additional significant reductions in reserves, even if planned, could result in negative rating pressure.
LARGE FINANCIAL RESERVES
The city's financial profile remains solid as evidenced by the maintenance of unreserved fund balances in excess of 20% of spending since fiscal 2006, well above its 9% fund balance policy level. Additions to fund balance had been enabled by strong sales tax growth and positive CPS (electric and gas utility rated 'AA+' by Fitch) payment trends, along with management's aggressive cost controls in the form mainly of annual personnel reductions. In recent years, however, the moderate planned use of reserves to balance budgets has reduced the city's financial cushion. Fitch expects any future planned drawdowns to trend downward.
TWO-YEAR BUDGET STRATEGY
The city's two-year budget strategy, in which a portion of reserves in excess of its fund balance policy are designated for the next year's spending (the two-year reserve), has expanded its planning horizon. A sizeable
Sales tax receipts grew by a solid 5.2% in fiscal 2013, exceeding the budget's 1% growth estimate above fiscal 2012 actuals. As a result of use of a portion of the two-year reserve, the unrestricted fund balance declined to a still strong
CURRENT YEAR'S PROGRESS AND FISCAL 2015 BUDGET
The fiscal 2014 budget increases general fund spending by less than 1% above the fiscal 2013 budget. The budget is balanced at a level property tax rate, assumes a modest sales tax gain of 1.7% (above actual fiscal 2013 receipts) and is aided by the appropriation of
The proposed fiscal 2015 budget, still under development, will incorporate a higher 10% financial reserve (
LARGE CAPITAL NEEDS
Part of the current offering represents the third installment of the
OVERALL DEBT PROFILE PRESSURED
The impact of the 2012 bond program on the city's direct debt profile should be manageable given its declining debt service schedule, average pay-out rate, and expansive tax base. The city's overall debt burden remains elevated at
STARBRIGHT BONDS' HIGH COVERAGE LEVELS EXPECTED
The contract revenue bonds, whose proceeds financed the acquisition and conveyance of the site for a Toyota manufacturing plant, comprise a modest part of the city's debt portfolio. The 'AA+' rating on these bonds reflects the strength of the revenue stream from which bond repayments are made, the very high debt service coverage, and the solid contract and legal covenants of the transaction. CPS' annual payment to the city's general fund is pledged for repayment of the contract revenue bonds.
Audited fiscal 2013 pledged revenues totaled
PFC LEASE REVENUE BOND DIFFERENTIAL
The PFC lease revenue bonds, issued in 2012, financed a major expansion of the city's convention center. The leased asset, the convention center, is not considered essential to core governmental operations by Fitch and serves as the basis for the two-notch distinction from the city's 'AAA' rating on its limited tax bonds. Also, the bonds' somewhat weak legal provisions do not include a mortgage interest for the trustee in the event of non-appropriation.
The non-appropriation of base rental payments requires the city to vacate the leased asset by the end of the last fiscal year for which lease payments were funded. Fitch notes that the primary planned repayment source, the 2% expansion hotel occupancy tax (HOT), can only be used for convention center expansion costs by state statute, minimizing the incentive for the city to withhold any annual appropriation.
WELL-FUNDED PENSION PLANS
Civilian and certain public safety employees participate in an agent multiple employer defined benefit pension plan administered by the
Retiree health benefits for civilians are provided by the city and are funded on a pay-go basis. Retiree health benefits for fire fighters and police have been financed on a pre-funded basis since 1989, resulting in a notable funded position of 40% as of
MILITARY STILL KEY WITHIN BROAD ECONOMY
Recent employment gains have been led by the leisure/hospitality and construction sectors. Energy sector employment has also expanded considerably due to surging oil and gas activity within the nearby
After posting strong annual gains through fiscal 2009, the city's taxable values remained flat through fiscal 2013 as new improvement values were offset by reappraisal losses on existing properties. AV rebounded with a 4.6% increase in fiscal 2014 and preliminary AV results for fiscal 2015 point to a solid 5.8% gain. The city projects annual new construction will increase taxable values from 1.8% - 2.5% annually over the next five years which Fitch considers reasonable.
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 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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