Fitch Affirms Brighton, MI LTGO's and ULTGO's at 'AA-'; Outlook Negative

NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on Brighton, MI's (the city) limited tax general obligation (LTGO) Building Authority bonds and unlimited tax general obligation (ULTGO) bonds:

--$550,000 LTGO Building Authority bonds, series 1996, affirmed 'AA-';

--$200,000 ULTGO bonds, series 1996, affirmed at 'AA-';

--$550,000 ULTGO bonds, series 1997, affirmed at 'AA-'.

The Rating Outlook remains Negative.

RATING RATIONALE:

--The Negative Outlook reflects the city's reduced financial flexibility which Fitch believes may become further pressured given anticipated sizeable tax base contractions.

--Management's demonstrated willingness and ability to make meaningful expenditure reductions to maintain adequate reserve levels.

--The debt burden is low and benefits from rapid amortization and limited future capital needs.

--Wealth levels are above-average and unemployment rates continue to trend downward.

--While Fitch currently makes no distinction between the ULTGO and LTGO ratings, further meaningful erosion of marginal taxing capacity coupled with overall financial flexibility would change the overall credit profile and could result in future rating differentiation between the two securities.

WHAT COULD TRIGGER A DOWNGRADE?

--Inability to return to positive operations and maintain adequate reserve levels.

--Continued erosion of the city's tax base resulting in further revenue declines.

SECURITY:

ULTGO bonds are secured by a voter approved property tax levy, outside the city's general operating millage that is adjusted, without limit, to pay debt service.

The LTGO bonds are secured by the city's operating millage that is used to support general operation and is subject to the Headlee millage cap.

CREDIT SUMMARY:

The city of Brighton is located approximately 45 minutes northwest of downtown Detroit in Livingston County. Brighton serves as the central business hub for approximately half of the county's population. Wealth levels in the county are average at 113% of the state and 98% of national norms. Unemployment in Livingston County was 9.3% as of December 2010 which was on par with both the state and national level; this marks a 26% reduction over the same month in 2009. While foreclosures are lower in 2011 than in 2010, housing prices remain depressed due to bank sales, and there is some indication that the current economic downturn could linger. The city's tax base remains moderately concentrated with the top 10 tax payers accounting for 13% and property values in the city have dropped significantly.

The continued weakness in the local housing market is expected to drive market values down even further thereby eroding an already weakened tax base. In fiscal 2010, both taxable value (TV) and State Equalized Value (SEV) declined by 1.5% and 4.3%, and are projected to decline by an additional 8.3% and 11.6%, respectively, in fiscal 2011. Further declines are also projected in 2012 and 2013. Fitch believes that with a minimal ($23 million) gap between TV and SEV and the lack of levy raising ability as the city is already levying at its tax cap, the city will be challenged to maintain its financial flexibility.

The city's general fund is heavily dependent on property taxes, which accounts for approximately 75% of general fund revenues. With the city currently operating at the maximum charter millage under the Headlee cap and without significant new taxable development, Fitch expects that the limited tax structure will continue to pressure the city's financial position. Fiscal 2010 saw tax revenues decrease by 1.6% and general fund expenditures decreased by 0.8%. Unreserved general fund balance was 10.6% of expenditures, down slightly from 12% in the prior year. Projections provided by management show a general fund balance of just over $1 million or 17% of operating expenditures which is higher than the adopted budget that reflected an ending fund balance of just 9% of expenditures. While expenditure growth has been flat in recent years through reduced personnel expenditures from attrition and furloughs and changes to existing insurance plans, additional expenditure reductions were made in fiscal 2011. Reductions included a 10% cut in the majority of non-personnel expenses, salary freeze for the third consecutive year for non-union administrative employees, and the second year of a one-day a month furlough program. Management expects that it will restore reserve levels to its 15% fund balance policy by or before fiscal 2012. While Fitch believes management has taken significant measures to restore reserves, it remains concerned that continued weakness in the housing market may limit the city's ability.

Total debt levels are average at $4,012 per capita and 3% of market value. Amortization is rapid with 76% of outstanding principal retired within 10 years; the city has recognized the need for additional capital projects however a long term bond financing proposal will only be considered after both the 1996 and 1997 Street Bonds mature in 2013 to negate a net millage increase. Maximum annual debt service is elevated at 15% of current expenditures and will remain above 10% through 2016; high debt service payments may further stress the city's already weakened financial position. The city's pension plan is through the Michigan Municipal Employees Retirement System (MERS) and is 69% funded as of June 30, 2010; the city annually contributes 100% of the annually required contribution and in fiscal 2010 the contribution was 7% of expenditures. Other post employment benefits are minimal and are being funded on a pay-go basis.

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., IHS and Global Insight

Applicable Criteria and Related Research:

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

--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

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

Applicable Criteria and 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=564566

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