Fitch Affirms Westlake, Ohio's GOs at 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Westlake, Ohio's general obligation (GO) bonds as part of its continuous surveillance effort:

--Approximately $16 million general obligation limited tax (GOLT) bonds affirmed at 'AAA';

The Rating Outlook is Stable.

RATING RATIONALE:

--Wealthy suburb, 15 miles west of Cleveland, featuring above average resident wealth levels and a strong tax base, despite some contraction during the recent economic downturn.
--Favorable debt position, as evidenced by the modest debt burden and rapid amortization.
--Solid history of fiscal management and maintenance of ample reserves provides financial flexibility. A large drawdown in 2008 reflects a one-time settlement of a legal judgment. Nevertheless, reserves approximated 100% of general fund expenditures at the end of 2009.

KEY RATING DRIVERS:

--The city's continued ability to balance its financial operations while maintaining adequate reserves.
--Voter renewal of the police and fire millage next spring will enable the city to continue funding police and fire salaries at current levels. Failure to pass the renewal may lead to expenditure pressure or reductions in reserves.
--The well maintained infrastructure along with the dedicated income tax for capital improvements should moderate the need for future borrowing and allow the city to retain its favorable debt profile.

SECURITY:

GOLT bonds are secured by the levy of ad valorem taxes, limited by rate within the 8.7 mills granted by the city's charter.

CREDIT SUMMARY:

Located 15 miles west of Cleveland, suburban Westlake is home to an affluent population, featuring per capita income at 171% of the state. Despite recent contraction, the tax base remains solid, generating an above average full value per capita of $137,000. Although primarily residential, approximately 25% of the tax base is derived from commercial or industrial properties. A recently developed downtown has served as a catalyst for investment, spurring both commercial and residential expansion. Although unemployment is trending higher, the June level of 7.9% remains well below those of the state (10.4%) and nation (9.6%). The city reports that additions of new companies and growth of existing ones will generate over 350 new jobs by the end of 2011.

Financial operations are well maintained, preserving ample reserves which provide comfortable margins for liquidity. The city has traditionally maintained large balances in its general fund, well in excess of the policy minimum of three months operating expenses. In 2008, settlement of a lawsuit required the city to purchase land for $15 million, triggering a $13 million decline of general fund balance. Despite the draw, the year-end balance still approximated 45% of expenditures. After recording a $5.2 million operating surplus in 2009, the general fund balance held the equivalent of 99% of expenditures. Officials expect to end 2010 with balanced operations, or a slight surplus. The preliminary 2011 budget calls for millage rates to remain steady, with a modest drawdown of general fund balance possible. In March 2011, the city will ask the voters to reauthorize 0.9 mills (which generate approximately $1.3 million) for police and fire operations; the millage levy is slated to expire at the end of 2011. Failure to secure timely reauthorization of the millage would require the city to explore alternative sources of revenue, and could place stress on the operating budget or lead to further reductions in reserve levels, potentially reducing the city's substantial flexibility.

The city's debt burden of 1% is modest, reflecting the substantial tax base. When measured on a per capita basis, overall debt is more moderate, at $1,362. Payout is rapid, with 80% of bonded debt scheduled for retirement within 10 years. No new borrowing is planned, although the city anticipates bonding out $9.3 million of bond anticipation notes (BANs) early next year. While this should not impact the debt burden, it may slow the rate of amortization, but Fitch expects payout to remain above average.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., 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:
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

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