News Column

Fitch Rates Columbus, OH's GO Bonds 'AAA'; Outlook Stable

August 8, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AAA' rating to the following Columbus, Ohio (the city) bonds:

--$34,270,000 various purpose unlimited tax refunding bonds, series 2014-5;

--$17,935,000 various purpose limited tax refunding bonds, series 2014-6.

Proceeds of the series 2014-5 bonds will be used to provide funds to advance refund selected maturities of series 2006A, 2007A and 2011A. Proceeds of the series 2014-6 bonds will be used to advance refund selected maturities of series 2006B and 2007B.

The bonds are scheduled for negotiated sale on August 20.

In addition, Fitch affirms the 'AAA' ratings on the following outstanding debt:

--$1.697 billion unlimited tax general obligation (ULTGO) bonds;

--$467.5 million limited tax GO (LTGO) bonds.

The Rating Outlook is Stable.

SECURITY

The ULTGO bonds are secured by the city's full faith and credit and its ad valorem tax, without limitation as to rate or amount.

The LTGO bonds are secured by the city's full faith and credit and its ad valorem tax, subject to the 10-mill limitation.

KEY RATING DRIVERS

DEEP AND DIVERSE ECONOMY: The city's growing economy benefits from the stabilizing presence of various levels of government, Ohio State University (OSU), notable healthcare institutions and financial services.

STRONG CONSISTENT MANAGEMENT: City officials have continually demonstrated proactive and effective financial stewardship.

AMPLE FINANCIAL FLEXIBILITY: The income tax rate increase in 2009 materially improved the city's trend in operating results. Unrestricted balances in the general and income tax funds provide additional margins of flexibility.

MANAGEABLE LONG-TERM OBLIGATIONS: The aggregate debt burden is elevated but manageable, characterized by above-average principal amortization, affordable carrying costs and reasonable future capital needs.

RATING SENSITIVITIES

STRONG FISCAL MANAGEMENT: The rating is sensitive to the maintenance of the strong fiscal management and budgeting practices that underscore the city's solid financial profile.

CREDIT PROFILE

Columbus, the capital of the state, is located in the central part of the state within the boundaries of Franklin County and, to a limited extent, Fairfield and Delaware counties.

The city's population has increased 11% over the past decade, and residents are relatively well educated, with 32% of the adult population attaining higher education versus 28% for the national average. Wealth levels are slightly below average with per capita income at 93% and 86% of the state and national means, respectively, but are negatively skewed by the OSU student population.

BROAD-BASED ECONOMY

Columbus is anchored by a stable and growing economic base largely composed of professional and business services, healthcare, education, and government. As the state capital and home to OSU, the city's economy remained relatively resilient during the most recent national recession.

Significant facilities investment by the healthcare and financial services sector, namely OSU, Nationwide Children's Hospital, and Nationwide Insurance, are expected to add to the city's expanding employment base with 10,000 new jobs over the next five years. A Hollywood Casino opened last year, adding another 1,000 jobs. Recent investments by JP Morgan Chase and Huntington Bank have added 5,000 and 2,000 new jobs, respectively.

The city's employment profile remains positive. The May 2014 unemployment rate of 4.4% is below the state (5.3%) and the national (6.1%) rates. The May 2014 rate is a significant reduction from the 6.1% recorded a year prior, as employment growth of 1.3% outpaced a decline(-0.5%) in the labor force.

AMPLE FINANCIAL FLEXIBILITY, STRONG MANAGEMENT

The city's financial position materially improved with the passage of a permanent 25% increase in the city's income tax levy to 2.5% from 2% effective October 2009. Income taxes accounted for 62% of total general fund revenues in 2008 compared to 73% in 2013.

Since 2010, the first full year of collections at the 2.5% rate, the city has recorded consecutive general fund net operating surpluses (after transfers).

The city generated a healthy general fund operating surplus, equivalent to 2.5% of spending in 2013, despite the state's elimination of the estate tax, accelerated phase-out of tangible property taxes, and reductions in local aid. The unrestricted fund balance at year-end Dec. 31 totaled $139.6 million or a solid 18.5% of spending, well above the low of 8.2% recorded before full implementation of the income tax increase in fiscal 2009.

In addition, the city retains substantial unrestricted reserves in its special income tax (SIT) fund, which totaled $169.8 million at 2013 year end. This balance represents an additional cushion equivalent to 22.5% of general fund spending. Although the city does not intend to access the SIT reserves for operating relief, there are no restrictions on its usage. The SIT account is funded by the city's long-standing policy of allocating 25% of total income tax revenues to the SIT fund, and such funds are traditionally used to pay non-enterprise-supported GO debt service.

The proposed 2014 budget anticipates a $15 million reduction of total general fund balance; management is currently projecting a $10 million decline. Year-to-date income tax revenues are positive with management reporting a 3.9% increase over last year. Fitch believes the impact on unrestricted general fund balance will be milder than city projections given the city's history of conservative budgeting of revenues and the expected deposits to the economic stabilization/rainy day fund (RDF) which is a component of the unrestricted general fund balance.

Prospectively, Fitch expects the city will maintain structural balance fully and, pursuant to an updated 2013 resolution, will continue to replenish the RDF to $75 million by 2018 year end. The rainy day fund currently totals $63.9 million.

MANAGEABLE LONG-TERM OBLIGATIONS

The city's overall net debt load is moderate at $3,048 per capita but weaker relative to market value at 6.1%. However, none of the city's debt is actually paid from property taxes, but rather from SIT or enterprise funds. Indicative of its conservative financial practices, payout of GO debt is rapid, with 70% repaid within 10 years.

The city limits borrowing in accordance with its internal debt affordability policies and has no exposure to derivative risk. Columbus' large $2 billion capital improvement plan primarily addresses environmental mandates for the city's sewerage system and is expected to remain self-supporting from utility fees and charges.

Voters authorized $842 million of additional borrowing at the November 2013 election, bringing the amount of authorized, unissued debt to approximately $805 million, post-sale. Officials anticipate issuing the debt over the next four to five years, with all debt service to be supported by enterprise or income tax revenues. The city has a favorable record of voter support for debt, with 100% of referenda approved since 1985. Debt service equaled an affordable 10.3% of governmental fund spending in fiscal 2013, despite the rapid amortization schedule. Fitch expects the tax-supported debt burden will remain manageable due to the city's historically prudent use of available debt capacity.

Columbus provides pension benefits through two state-sponsored defined benefit pension plans and is required by law to annually fund its full annual pension contribution (APC). The city also pays a higher than average proportion of its other post-employment benefits (OPEB) annual required contribution (83% in 2012).

Historically, the city paid the employee's portion of the pension contribution in addition to the city's APC payment (pension pick-up). The city has been negotiating phase-out of this practice in recent labor contracts. All negotiated contracts now include provisions to gradually reduce the pension pick-up, resulting in material pension cost savings which should keep future increases more manageable. Carrying costs for debt service, pension ARC, and other post-employment benefits (OPEB) have been declining over the past several years and amounted to a moderate 16.7% of governmental fund spending in 2013, excluding the portion of the employees' costs that the city covered. Including those costs, the figure rises to a still moderate 18.3%.

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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Underwriter, Bond Counsel and Financial Advisor.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=847535

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Karen Wagner, +1 212-908-0230

Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Arlene Bohner, +1 212-908-0554

Senior Director

or

Committee Chairperson

Michael Rinaldi, +1 212-908-0833

Senior Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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