Fitch Affirms East Grand Rapids, (MI) ULTGO's and GOLT's at 'AAA'; Outlook Stable

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

--$1,375,000 ULTGO bonds, Series 2002, affirmed at 'AAA';

--$8,430,000 ULTGO bonds, Series 2004, affirmed at 'AAA';

--$3,140,000 2005 GOLT Michigan Transportation Fund bonds, affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The city benefits from a strong financial management team with conservative budgeting practices and a demonstrated record of proactive fiscal management;

--Financial flexibility is supported by consistently strong unreserved general fund balances;

--Residents benefit from employment opportunities both within the city and throughout the Grand Rapids metropolitan area.

--Taxable values (TV) are stable and provide a consistent base for property tax revenue;

--Debt burden is elevated due to overlapping debt from the local school district. The city has no debt plans in the near future.

KEY RATING DRIVER:

--Sustained financial flexibility by a continued demonstration of conservative budgeting and expenditure controls.

SECURITY:

ULTGO bonds - The bonds are secured by the city's full faith and credit and its unlimited ad valorem tax pledge;

GOLT Michigan Transportation Fund bonds - The bonds are secured by both the city's full faith and credit and its limited ad valorem tax as well as the city's allocation of amounts received from the state's transportation fund (the fund), which funds are generated from state-wide vehicle license and motor fuel taxes.

CREDIT SUMMARY:

East Grand Rapids is a small suburb of Grand Rapids covering approximately 3.4 square miles. The city is a bedroom community with a stable population which has had only minor fluctuations in the past 10 years. Wealth levels in the county are average for the state and slightly below the nation. County unemployment was 8.9% as of January 2011 which was below both the state and national norms for the same month. Major employers in the Grand Rapids area include Spectrum Health Blodgett Hospital, Meijer, Inc. and Steelcase Inc. The local school district and Spectrum Health (east campus) are the city's major employers; in the fall of 2010 Spectrum Health Blodgett Hospital completed a $100 million renovation that will bring up to 400 new jobs to the city.

Taxable values (TV) increased in fiscal 2008 and 2009 and then declined slightly (1.4%) in fiscal 2010, however in 2011 TV increased again (1.2%); preliminary results for 2012 show a similar increase in TV and the city expects slow continued growth. As to be expected from a residential community, the city's tax base is not concentrated and the majority of its taxpayers are individuals.

Foreclosures in the city are minimal and property tax delinquencies have decreased in each year since 2008. The city's millage rate has remained level for three years and since growth in TV has been moderate, has not been subject to a roll back due to the Headlee amendment.

The city is heavily dependent on property tax revenues which account for approximately 70% of total general fund revenues. Unlike most Michigan localities, property tax revenue has not been subject to declines caused by the economic downturn. State shared revenue provides less than 10% of the city's general fund revenues and given its vulnerability, the city conservatively budgets for no statutory aid.

Wage freezes for the past two fiscal years have controlled spending. In addition, pension costs are manageable since the city implemented a defined contribution plan in fiscal 1999 and 2002 for general and public safety retirees respectively. As a result, only 25% of city employees remain in the defined benefit retirement plan.

In fiscal 2010, financial operations resulted in a small surplus of $244 thousand in the general fund (2.7% of expenditures) bringing total unreserved fund balance to $2.3 million or 23% of expenditures. Preliminary fiscal 2011 results are positive and the general fund is performing better than budget. The city anticipates adding another $175 thousand (2% of expenditures) to the general fund at the end of fiscal 2011. The city has consistently exceeded its informal general fund balance policy of 15% of general fund expenditures and is expected to continue this practice of maintaining significant financial flexibility.

The city's direct debt is low at 1.1% of market value or $1,207 per capita; however, overall debt is much higher at approximately 6.7% of market value and $7,613 per capita, due mostly to borrowing by the local school district. Amortization is below average with 40% retired within 10 years however the city has indicated that no additional debt will be issued in the near future.

Pension costs for the city remain manageable due to the shift from defined benefit to defined contribution plans. In addition, the city has made contributions to fund its other post employment benefits in excess of the annual required contribution in an effort to reduce the unfunded actuarial accrued liability which was $1.8 million or 0.15% of market value as of June 30, 2006, the date of the last actuarial valuation.

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

Related Research:

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

'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct 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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