Fitch Affirms Beachwood, Ohio, GOs at 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Beachwood, OH's (the city) general obligation (GO) bonds as part of its ongoing surveillance efforts:

--$8.1 million outstanding limited tax general obligation (LTGO) municipal complex improvement bonds series 2004, affirmed at 'AAA';

--$540,000 outstanding LTGO various purpose bonds series 2002, affirmed at 'AAA';

--$385,000 outstanding LTGO street and sewer improvement bonds series 2000, affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Management has demonstrated its ability to implement revenue and spending plans enabling the city to maintain strong reserve levels.

-- Beachwood benefits from its proximity to and participation in the Cleveland regional economy.

-- The successful passage of an income tax rate increase demonstrates strong voter support and bolsters the city's financial flexibility.

-- The city's socioeconomic indicators are on par with state averages and its unemployment rate is below national and state rates.

-- Debt margins are easily managed coupled with rapid amortization and limited future capital needs.

KEY RATING DRIVERS:

Management's continued ability to achieve budgetary balance and maintenance of strong reserves given the city's heavy reliance on the economically sensitive income tax revenues.

SECURITY

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

CREDIT SUMMARY

Located approximately 13 miles from downtown Cleveland, Beachwood lies in eastern Cuyahoga County (Fitch rated 'AA+). The city's proximity to Cleveland and major transportation routes have fostered its development as a regional retail and office center for the eastern Cleveland suburbs. While the city's detailed socioeconomic indicators are unavailable, the county's wealth indicators are typical of the state levels. The county's December 2010 unemployment rate of 8.6% compares favorably with the state and national rates, which are 9.2% and 9.1%, respectively. The city's broad economic base is led by a major facility of Bank of America and the Cleveland Clinic Foundation. Even during the economic downturn, Beachwood has managed to attract additional business investment as University Hospital Ahuja Medical Center and Eaton Corporation are expected to fully expand into an upscale office park next year. As of the third quarter 2010, data available to Fitch indicate housing foreclosures within the city are slightly above the national average.

The city's financial position remains strong despite the decline of total general fund revenues in the past two fiscal years. The city's two largest revenue sources, income and property tax revenues, which respectively account for 63% and 9% of total revenues as of fiscal 2010, dropped by 8% and 4%, from the year prior. Declining revenues prompted the use of reserves to provide budgetary balance, the first time in the last four years. Despite the fund balance draws in 2010, the city still maintains a strong general fund balance of 49% of expenditures. In light of the declining income tax revenues, voters approved a 0.5% increase in the city's income tax rate to 2.0% in November 2010, which is expected to bring at least $5 million-$6 million in additional income and help replenish general fund reserves in fiscal 2011.

The city's direct debt burden is moderately low at $1,653 per capita and 1.8% of market value (MV). Overall debt levels are moderate, with debt per capita at $4,112 and 4.5% of MV. Prospectively, the city's debt levels should be easily managed, as the future capital needs are limited. The city's pension liabilities are limited to its participation in the state pension plans. The city's annual contribution to the pension plans, which is determined by the state law, was $1.6 million in 2009, or a manageable 6% of total general fund spending. The city contributes to post-employment healthcare benefits through the state pension plans; its 2009 contribution was equal to 3% of total spending.

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.

Applicable Criteria and Related Research:

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

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

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

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.