The Rating Outlook is Stable.
The COPs are payable from sewer installment payments made by the city to authority, which assigns the right to receive payment to the trustee. The city's obligation to pay installment payments is unconditional and is secured by a first lien on wastewater enterprise net revenues. It is not subject to appropriation. The series 2004A and series 2007A COPs have debt service reserve funds (DSRFs) sized to the
KEY RATING DRIVERS:
--IMPROVED FINANCIAL OPERATIONS: The upgrade to 'AA-' reflects the system's improved financial profile, including sound debt service coverage, strong liquidity, and reasonable multi-year projections that suggest continued fiscal prudence. Several years ago the system suffered from very weak debt service coverage levels below 1.0x, net of transfers to the general fund.
--REDUCED REGULATORY UNCERTAINTY: Uncertainty that existed several years ago when the city's discharge permit was under review has been resolved. A new five year discharge permit was issued in
--MANAGEABLE DEBT PROFILE: Debt levels are slightly above average but should decline over time given moderate debt amortization and plans to fully fund the system's five-year capital improvement plan (CIP) with pay-as-you-go financing.
--RATE INCREASES MODERATING: The system implemented substantial rate increases in fiscals 2011 and 2012 to support capital spending for regulatory compliance and to enhance the system's financial position. A recently approved five-year rate plan suggests future rate increases will not exceed 3% annually.
--CONTINUED ECONOMIC RECOVERY: The city's economic recovery is ongoing, with rapidly recovering home prices, new residential and commercial construction, and rising employment. However, income levels are below state and national averages, and unemployment remains high despite recent improvements.
--STABLE OUTLOOK: The rating is sensitive to shifts in fundamental credit characteristics including the system's financial operations and debt profile. The Stable Outlook reflects Fitch's expectation that such shifts are not likely over the next review cycle.
The city has a population of 63,300 in the
The city's wastewater system serves nearly 24,000 customer accounts in the city of
IMPROVED SYSTEM FINANCIAL OPERATIONS
The system's financial performance has improved significantly over the past several years. Fiscal 2013 operations produced debt service coverage of 1.8x after a transfer out to the general fund. Liquidity also improved to
Debt service coverage improved from fiscal years 2009 and 2010 when coverage net of transfers out was just 0.8x and 1.1x, respectively. The low financial margins were the result of declines in connections fees and increased costs related to capital requirements. In response, the city implemented a series of large rate increases, refunded a portion of its debt for interest rate savings, and lowered certain expenditures. These measures, in addition to the system's near-completion of its largest capital projects, have put the system on a sound financial footing with more modest rate increases planned moving forward. The council recently approved a five-year rate plan with rate increases not to exceed 2.5%-3% annually.
The system's multi-year financial projections include reasonable revenue and expenditure assumptions, including no connection fees, and suggest recent years' financial improvements are likely to hold or continue to improve. Forecasted debt service coverage levels, net of transfers out, range from 1.92x-2.19x from fiscal years 2015-2019.
The system's flat wastewater rate for a residential three-bedroom house is
REDUCED REGULATORY CONCERNS
Fitch views positively the system's five-year renewal of its discharge permit with no significant capital requirements. The system's former permit had been remanded back to the
Subject to certain customer expansion opportunities, management may also have the opportunity to sell more of its treated effluent, which could reduce discharges from the environmentally sensitive
ADEQUATE DEBT PROFILE
The system's debt levels are elected at
STABLIZING SERVICE AREA ECONOMY
The city's economic performance continues to improve from trough levels reached during the recession. The housing market has shown marked improvement, with increasing residential construction and rising home values.
Although the city's economy continues to recover, its key economic data is somewhat weak. Unemployment registered a high 8.8% in
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope, and Zillow.
--'Revenue-Supported Rating Criteria'
--'U.S. Water and Sewer Revenue Bond Rating Criteria',
--'2014 Water and Sewer Medians',
--'2014 Outlook: Water and Sewer Sector',
Revenue-Supported Rating Criteria
U.S. Water and Sewer Revenue Bond Rating Criteria
2014 Water and Sewer Medians
2014 Outlook: Water and Sewer Sector
Source: Fitch Ratings
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