Fitch Affirms Marysville, Michigan's GOs at 'AA-'; Outlook Revised to Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating actions on Marysville, Michigan's (the city) limited tax general obligation (LTGO) bonds:

--$3.4 million limited tax GO capital improvement bonds, series 2006, affirmed at 'AA-';

--$0.4 million limited tax GO wastewater revenue bonds, series 1993, affirmed at 'AA-'

The Rating Outlook is revised to Stable from Negative.

RATING RATIONALE:

--The Outlook revision to Stable from Negative reflects the city's ability to maintain a high level of financial flexibility despite reductions in Taxable Valuation (TV).

--The local economy is concentrated in auto manufacturing; however, initial signs of stability are evident, mainly in the county-wide unemployment rate which is improving at a pace almost twice the national rate.

--Tax base concentration is high with the top 10 taxpayers representing over 30% of TV.

--The city maintains an adequate, albeit reduced, cushion under the statewide property tax cap.

--Overall debt is moderately high.

KEY RATING DRIVERS:

--The city's ability to maintain sufficient financial flexibility while managing revenue losses due to projected tax base erosion;

--Continued evidence of local economic stabilization, particularly related to the automobile industry.

SECURITY:

The LTGO bonds are secured by the city's full faith and credit general obligation and its ad valorem tax pledge, subject to applicable charter, statutory and constitutional limitations.

CREDIT SUMMARY:

Marysville is located in St. Clair County (the county), approximately 55 miles northeast of downtown Detroit and has an estimated population of 9,964. The regional economy remains anchored by the automotive industry and as a result taxable values have suffered and unemployment levels remain high. Notably, the county's unemployment has declined to 15% in June 2010 from 18.4% the year prior. While the rate remains well above the national average of 9.6% in June 2010, the 18.5% rate of decline far exceeds the 1% experienced nationally when compared to June 2009. According to city officials, employment within the city has improved with many individuals who had been laid off being re-hired. City foreclosure rates are on par with the national average and delinquency rates are notably better than the national norm.

There is significant tax base concentration with the top 10 taxpayers representing 34% of TV. Chrysler Corp. is the largest at 10.4% followed by Marysville Ethanol at 6.8%. ZF Friedrichshafen (ZF) leased 70% of a new Chrysler axle plant and opened for business in June 2010. Under Michigan law, Chrysler as the property owner will remain responsible for paying real property tax and ZF, as the lesee, will be responsible for paying their portion of personal property tax. The city has granted the plant a 12-year, 50% tax abatement for both real and personal property and all tax payments are current.

The city has consistently maintained high unreserved general fund balances. The $5.1 million unreserved balance for fiscal 2009 represented a high 58% of spending and was supported largely by expenditure cuts which offset property tax revenue losses due to a 1.5% loss in TV. The city anticipates generating a small operating surplus for fiscal 2010. The fiscal 2011 budget is balanced without a tax increase despite an 8% anticipated contraction in TV to $393 million due to both operating and capital expenditure cuts. The city maintains 2.991-mill margin under the statewide property tax cap and while TV declines have reduced the monetary benefit associated with the tax rate cushion, the additional financial flexibility remains a strong rating factor. The city has acknowledged that the additional millage available may be utilized to support operations in the future.

The city's net direct debt burden is low at $277 per capita and 0.6% of market value. Overall debt is now moderately high at $3,106 per capita and 6.75% of market value due to the issuance of debt by the city's school district supporting the construction of a new high school. The city has no borrowing plans for the near future.

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 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:

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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