Fitch Rates Overland Park, Kansas' GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Overland Park, Kansas (the city) bonds:

--$13,815,000 general obligation (GO) internal improvement bonds, series 2010.

The bonds are scheduled for competitive sale Aug. 25, 2010. Proceeds will be used for various capital improvements.

In addition, Fitch affirms the following ratings:

--$174.9 million general obligation bonds affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The city enjoys a deep and diverse local economic base, further augmented by its proximity to the larger Kansas City metropolitan region.

--Residents display a superior socioeconomic profile reflecting high wealth, employment and educational levels.

--Despite generating sizable operating deficits for the last two years, the city enjoys a considerable general fund balance cushion.

--Management has demonstrated a history of prudent financial stewardship.

--The debt profile remains positive, characterized by a moderate overall debt burden, rapid principal amortization, and a supportable capital improvement plan.

KEY RATING DRIVERS

--The city's ability to maintain adequate financial flexibility given its reliance on several economically-sensitive revenue sources especially during this protracted economic recession;

--Sound budgeting and financial management practices are expected to preserve acceptable fund balance levels despite planned general fund draw downs for the next several years.

SECURITY:

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

CREDIT SUMMARY:

Overland Park, the second largest city in the state of Kansas, is an affluent community located within the Kansas City metropolitan region that benefits from a deep and diverse local economy, an extensive transportation network, available land, and a well-educated workforce. Leading private employers within the city include Sprint/Nextel with 7,300 employees, Black & Veatch Corp. (3,247), Century Link Corp. (2,100), Overland Park Regional Medical Center (2,000). Both the financial services and professional and business service sectors account for a greater percentage of total countywide employment as compared to the national average. Reflecting the impact of the current recession coupled with the state-mandated gradual reduction in personal property values, taxable assessed valuation experienced a moderate 4.3% decline for 2010 and is projected to decrease by an additional, manageable 5.8% for 2011. Housing data indicates foreclosure and delinquency rates are well below the national average.

Continuing a multi-decade growth trend, the city's 2009 estimated population of 174,907 is up 15% since 2000. Wealth levels are above average at 150% and 142% of the state and national averages, respectively. The city's June 2010 unemployment rate declined 10% from the year prior to 6.1% as compared to a 6.5% statewide average. The city's declining unemployment rate potentially signifies re-absorption of the city's educated workforce, of which 55% attain higher education versus 27% nationally.

Historically, healthy economic expansion and tax base growth resulted in consistent operating surpluses. However, primarily due to the economic slowdown, the city generated 13% and 11% general fund operating deficits after transfers for the past two years. The deficits are the result of both the city's reliance upon economically-sensitive sales tax and the city's obligation to refund certain compensating use tax receipts. Beginning in mid-2008, the city was notified of pending refunds dating back to 2003 due to inaccurate revenue reporting primarily by one company. The city refunded $18.1 million between 2007 and July 2010, and has remaining, as a conservative estimate, an additional $2.6 million tax refund liability. To offset the liability and account for the reduction in future compensating sales tax revenues (which historically had been used solely for capital purposes), the city reduced its maintenance and capital expenditures annually since late 2008. Despite the tax refunds and operating deficits, the 2009 unreserved general fund balance is still notable at 39.7% of expenditures and transfers out.

Prospectively, the city is conservatively budgeting draws on its available general fund reserves through 2015, thus reducing its financial cushion to a still acceptable 14% of expenditures. Although the forecast calls for the gradual reduction in general fund balances, the city is expected to maintain acceptable reserve levels consistent with an 'AAA' rating. Further, it should be noted that the city has considerable operating flexibility through both its property and sales taxes. Currently, the city's direct property tax rate is one of the lowest in the state, and the city may increase its sales tax rate to 3% from the current 1%. Additionally, the city eliminated 57 positions in 2010 and resized its capital program to help curb future expenditure increases.

Aggregate debt levels are easily managed at $3,675 per capita and 3.5% of market value. Debt levels are expected to remain acceptable given the city's $121.5 million five-year capital improvement plan, of which roughly $24 million will be debt financed. Principal amortization is rapid with 70% repaid within 10 years. Of some concern is the city's contingent liability to $111 million in outstanding convention center hotel bonds, for which the city has solely pledged transient guest tax revenues, subject to annual appropriation, if the debt is not sufficiently supported by net hotel revenues. The city redirected $2.5 million (38% of total collected) in transit guest taxes in 2009 and has budgeted $4.5 million (66% of estimated collections) in 2010. The diversion of hotel tax revenues which would otherwise be used to retire outstanding general obligation debt is therefore placing greater demands on the general fund. Convention center bookings are reportedly favorable, thus potentially improving the prospects for the hotel's self-sufficiency.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the report 'Tax-Supported Rating Criteria', this action was informed by information from Creditscope, LoanPerformance, Inc., University Financial Associates, Overland Park officials, and IHS Global Insight.

Related Research:

'Tax-Supported Rating Criteria,' dated Aug. 16, 2010

'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.

Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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