NEW YORK--()--Fitch Ratings has assigned an 'AAA' rating to the following Columbus, Ohio (the city) bonds:
--Approximately $13.6 million various purpose limited tax refunding bonds, series 2012-7;
--Approximately $29.5 million various purpose limited tax refunding bonds, series 2012-8 (federally taxable).
Proceeds will be used to refund the tax increment financing bonds, series 2004A (Polaris project) and the tax increment financing bonds, series 2004A (Easton project). The bonds are scheduled for negotiated sale the week of Nov. 15.
In addition, Fitch affirms the 'AAA' ratings on the following outstanding debt:
--$1.882 billion unlimited general obligation (ULTGO) bonds;
--$414.9 million limited general obligation (LTGO) bonds.
The Rating Outlook is Stable.
The ULTGO bonds are secured by the city's full faith and credit and its ad valorem tax, without limitation as to rate or amount.
The LTGO bonds are secured by the city's full faith and credit and its ad valorem tax, subject to the 10-mill limitation.
KEY RATING DRIVERS
DEEP AND DIVERSE ECONOMY: The city's growing economy benefits from the stabilizing presence of various levels of government, Ohio State University (OSU), notable healthcare institutions and financial services.
STRONG MANAGEMENT: City officials have consistently demonstrated proactive and effective financial stewardship.
IMPROVING FINANCIAL FLEXIBILITY: The income tax increase in 2009 materially improved the city's trend in operating results. Unrestricted balances in the general and income tax funds provide additional margins of flexibility.
ELEVATED LONG-TERM OBLIGATIONS: The aggregate debt burden is elevated but manageable, principal amortization is rapid and future capital needs appear reasonable. Annual pension payments account for a notable portion of the city's budget.
DEEP AND DIVERSE ECONOMY
Columbus is anchored by a stable and growing economic base largely composed of professional and business services, healthcare, education, and government. As the state capital and home to OSU, the city's economy remained relatively resilient during the most recent national recession. Columbus' initial recovery from the recession was slower than other Ohio metropolitan regions but this is, in part, because the city experienced smaller recessionary losses.
Significant facilities investment by the healthcare and financial services sector, namely OSU, Nationwide Children's Hospital and Nationwide Insurance, are expected to add to the city's expanding employment base with an additional 10,000 new jobs over the next five years. A Hollywood Casino opened last month, adding another 2,000 jobs.
The city's September 2012 unemployment rate of 5.8% is below the state (6.5%) and is well below the national (7.6%) rate. The city's population has increased 11% over the past decade, and residents are relatively well educated, with 33% of the adult population attaining higher education versus 28% for the national average. Wealth levels are slightly below average with per capita income at 95% and 87% of the state and national means, respectively, but are marginally negatively skewed by the OSU student population.
IMPROVING FINANCIAL FLEXIBILITY
The city's financial position materially improved with the passage of a permanent 25% increase in the city's income tax levy to 2.5% from 2% effective October 2009. Income taxes accounted for 63% of total general fund revenues in 2008, and 69% in 2011, after the rate increase.
The city reversed its negative operating trend in 2010, the first full year of collections at the new rate, recording a net operating surplus (after transfers) of $37 million (5.6% of spending). Another net operating surplus of $25.9 million in 2011 lifted unrestricted general fund balance to a solid 16.3% of spending, well above the low of 6.5% recorded before full implementation of the income tax increase in fiscal 2009.
In addition, the city retains substantial unrestricted reserves in its special income tax (SIT) fund, which totaled $157 million at year-end 2011. This balance represents an additional cushion equivalent to 22% of general fund spending. Although the city does not intend to access the SIT reserves for operating relief, there are no restrictions on its usage. The SIT account is funded by the city's long-standing policy of allocating 25% of total income tax revenues to the SIT fund, and such funds are traditionally used to pay non-enterprise supported GO debt service.
STRONG FINANCIAL MANAGEMENT
Fitch believes the challenging environment will continue throughout 2012 given the overall economic conditions; however, city officials continue to proactively respond to changing circumstances. Due to the state's elimination of the estate tax, accelerated phase-out of tangible property taxes, and reduction in local aid, the city calculates it will lose $12.8 million in revenue in 2012 and $16.8 million in 2013. Despite these projected revenue declines, the city's 2012 budget is balanced without use of nonrecurring revenues. Officials project balanced operations for fiscal year 2012; this projection seems reasonable to Fitch, given improving economic conditions and income tax receipts which are ahead of budget year-to-date.
Prospectively, Fitch expects the city will address any structural imbalance fully and, pursuant to a 2009 resolution, will continue to replenish its economic stabilization (rainy day) fund (part of general fund) to $50 million by year-end 2014. The rainy day fund is anticipated to total at least $40 million at year-end 2012.
ELEVATED LONG-TERM OBLIGATIONS
The city's overall net debt load is above average at $3,143 per capita or 5.9% of market value. Indicative of its conservative financial practices, payout of GO debt is rapid, with 68% repaid within 10 years.
The city limits borrowing in accordance with its internal debt affordability policies and has no exposure to derivative risk. Columbus' large $2 billion capital improvement plan primarily addresses environmental mandates for the city's sewerage system and is expected to remain self-supporting from utility fees and charges.
Although the city retains substantial authorization for additional debt, officials anticipate requesting additional voted debt authorization at the November 2013 election. The city has a favorable record of voter support for debt, with 100% of referenda approved since 1985. Debt service equaled a moderate 9.8% of governmental fund spending in fiscal 2011. Fitch expects the tax-supported debt burden will remain manageable due to the city's historically prudent use of available debt capacity.
Columbus provides pension benefits through two state-sponsored defined benefit pension plans and is required by law to annually fund its full annual pension contribution (APC). Historically, in addition to the city's APC payment, the city paid the employee's portion of the pension contribution (pension pick-up). However, the city has been negotiating phase-out of this practice in recent labor contracts. All negotiated contracts now include provisions to gradually reduce the pension pick-up.
The city contributed $130 million for both plans in 2011, equivalent to a high 18.5% of general fund spending. However, roughly 30% of the obligation is supported outside the general fund. A portion of the payment also included a contribution for other post-employment benefits, which, on an aggregate basis, makes the payment more reasonable. Furthermore, the city should benefit from the phase-out of the pension pick-up, which cost the city $37.3 million in 2011.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's 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, National Association of Realtors, Underwriter, Bond Counsel and Financial Advisor.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria