NEW YORK--(BUSINESS WIRE)--Fitch Ratings has, as part of its continuous surveillance effort, taken the following rating action on Columbia MO's (the city) bonds:
--$13 million special obligation improvement bonds (Build America Bonds), series 2009A, affirmed at 'AA';
--$25.5 million special obligation improvement bonds, series 2008B, affirmed at 'AA';
--$21.5 million special obligation electric utility improvement bonds, series 2008A, affirmed at 'AA';
--$38.5 million special obligation electric utility improvement bonds, series 2006C, affirmed at 'AA'.
At this time, Fitch also assigns an implied unlimited tax general obligation (ULTGO) rating of 'AAA'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--The ULTGO rating reflects a diverse and growing economic base anchored by a university community.
--The city's tax has grown significantly over the past four years; however, the rate of growth has slowed.
--A strong financial management team that has demonstrated a commendable record of proactive fiscal operations has provided the city with ample financial flexibility counterbalancing a dependence on economically sensitive revenue.
--The majority of outstanding debt is supported from enterprise funds and as a result the city's debt burden is low; however, amortization is below average.
--The 'AA' rating on the special obligation bonds reflects appropriation risk and lack of security interest in the projects.
SECURITY
All series are special obligations of the city, payable solely from the annual appropriation of funds. City ordinance requires the city manager to include in each annual budget an appropriation of the amount necessary to pay debt service on the bonds in the next fiscal year and to take any further action that may be necessary to assure the availability of money appropriated to pay the debt service. The bonds are not secured by a leasehold interest or mortgage of the project.
The series 2008A and 2006C bonds in practice are payable from revenues of the electric utility.
CREDIT PROFILE
The city of Columbia is located in Boone County in the central portion of the state along interstate 70. The city benefits from a diverse economic base which includes a mix of government, education, health care and financial services. The city is home to the main campus of the University of Missouri, Columbia College and Stephens College and as such the university community has created a highly skilled workforce; approximately 52% of residents are college graduates, compared with 28% nationally, which has attracted considerable private business investment.
Unemployment in the city was 5.8% as of May 2011, which was considerably lower than the state at 8.8% and the nation at 9.3% in the same month. While the unemployment rate is higher than a year prior, the increase reflects a 1% increase in the labor force over the same period. Population grew by 22% compared to the 2000 census, reaching approximately 108,500 residents in 2010. Slightly below-average wealth indicators - - median household income is 89% of the state and 79% of the nation - are a reflection of the large student population.
General fund revenue sources are diverse; property taxes account for approximately 13% of total revenues. Assessed values (AV) in the city have risen in each year since at least 2006; however, the rate of growth has slowed. The current property tax rate is $0.41; lower than the state-wide cap of $1.00; however, flexibility is limited as the rate cannot be raised without voter approval under the Hancock Amendment. Sales and other taxes make up 50% of the revenue base and have performed consistently over the past five years.
The city receives significant general fund support from payments in lieu of taxes (PILOT) from the water and electric utility which accounts for approximately 17% of general fund revenues. Operations at the utility are sound and future support of the general fund is expected to continue. Fitch views the reliance on utility revenues as credit neutral given the strength of the utility operations and the clear way in which utility rates are set to provide a fixed level of general fund support.
The general fund had a net surplus in four of the last five years and the fiscal 2010 unreserved general fund balance was $21.5 million or a strong 30% of spending. The city expects to end fiscal 2011 with a slight deficit and estimates using approximately $900,000 from the available balance for operations. Management also indicated that they expect to use less than $1 million in fund balance for operations in 2012 and project that the general fund will return to positive operations by 2013. The city's total fund balance will remain well above the 16% policy goal set by the city even after the planned draws in 2011 and 2012.
The city's overall debt burden is low at $1,377 per capita and 2.2% of market value. Tax supported debt should remain low given that the city plans to issue additional revenue supported debt in the near future. Pension benefits are provided through two city-administered single-employer defined benefit plans - the police retirement fund and the fire fighters retirement fund, as well as the Missouri local government employee's retirement system (LAGERS), an agent multi-employer defined benefit public employee retirement plan. Using Fitch's more conservative 7% rate of return, all three plans have below-average funding levels between 61% and 72%. The city prudently funds 100% of the annual required contributions. The fixed cost burden on the budget for pensions and debt service is elevated at 26% of fiscal 2010 spending and likely to grow given the below-average amortization and pension funding levels.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated 16 Aug. 2010.
'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct. 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
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