AUSTIN, Texas--()--Fitch Ratings affirms the following Terrebonne Parish, Louisiana (the parish) general obligation (GO) bonds and sales tax revenue bonds:
--$18.4 million GO bonds at 'AA-';
--$15.9 million public improvement sales tax bonds (PIBs) at 'AA-' (excludes PIBs, Series ST-2009 and ST-2011);
--$7.1 million public library sales tax bonds at 'AA-'.
The Rating Outlook is Stable.
GOOD FINANCIAL FLEXIBILITY: Operating reserves and liquidity are robust. Additional flexibility is evidenced by the parish's significant general fund transfers for capital outlays.
RELIANCE ON VOLATILE REVENUES: Management continues to budget conservatively for economically sensitive sales taxes and mineral royalties, which are the leading sources of operating revenue.
CONCENTRATED ECONOMIC BASE: Area employment and top taxpayers are concentrated in the oil and gas industry. Growth in taxable assessed valuation (TAV) continues aided by a stable housing market and development underway.
OIL SPILL RECOVERY: Cleanup efforts from the British Petroleum (BP) oil spill have largely concluded. Drilling permits in the Gulf have increased and recent employment gains suggest recovery in the oil/gas and tourism sectors.
LOW DEBT BURDEN: The parish's debt levels are low, payout is average, and future capital needs are manageable. Pension costs are rising and may present a near-term budget pressure.
SPECIAL TAX RATINGS ON PAR WITH GO: Strong coverage and solid legal provisions supports the 'AA-' special tax ratings that are on par with the parish's ULTGO rating.
The GO bonds are secured by the full faith and credit of the parish and payable from an unlimited property tax levied against all taxable property within the parish's boundaries.
The PIBs are secured by 1/3 of 1% of the parish general sales and use tax and 1/4 of 1% of a separate capital improvement sales and use tax. The PIBs also have a cash-funded debt service reserve equal to maximum annual debt service (MADS).
The public library sales tax bonds are secured by a 1/4% dedicated library sales tax. The library bonds also have a cash-funded debt service reserve equal to MADS.
Terrebonne Parish is located on the Gulf of Mexico in southern Louisiana, 50 miles southwest of New Orleans. The parish has an estimated population of 112,000 which is up slightly from the 2000 Census.
LOCAL ECONOMY CONCENTRATED IN OIL & GAS
Major industries include oil and gas production and services, commercial fishing, and marine transportation and shipbuilding complemented by employment in government, education, healthcare, and business services. The parish's tax base is concentrated in the oil/gas sector and there is some top taxpayer concentration, with the top 10 (mostly oil and gas businesses) comprising 21% of TAV. Moderate TAV growth has continued following the recession; the 2012 re-appraisal of existing values (occurring every four years in Louisiana) added 5% to TAV.
SIGNS OF RECOVERY FOLLOWING GULF OIL SPILL
The parish shed about 3,000 jobs (6%) from 2009-2011 as a result of the recession and impact of the BP oil spill in April 2010 and subsequent drilling moratorium, but recent indicators suggest moderate economic recovery. The drilling moratorium was lifted in October 2010 and deepwater drilling permits approved in the Gulf now exceed pre-spill levels. Employment totals in 2012 are up 3.8% for the 12-months ending November 2012, improving the unemployment rate to a low 3.2% from 4.7%. Additionally, BP continues to make claims payments to residents and businesses for economic damages, which has boosted area retail activity.
FINANCIAL FLEXIBLITY AIDED BY PRUDENT BUDGETING PRACTICES
The parish's exposure to economically sensitive revenues, consisting of sales taxes, state mineral royalties, and video poker proceeds, is mitigated by the high level of operating reserves and management's prudent budgeting practices. These revenues that are in excess of the budget are typically allocated for non-recurring expenditures and the parish delays spending the surplus funds until the subsequent fiscal year.
Large transfers out for capital items and, to a lesser degree, revenue declines, contributed to a significant net operating deficit after transfers in fiscal 2009 (20% of spending). Management subsequently reduced in 2010 and then eliminated in 2011 the historically large (15%-20% of spending) transfers for capital spending. Joined with reductions to personnel and department budgets, the parish posted a very small fiscal 2010 net operating deficit and $2.9 million net operating surplus after transfers in fiscal 2011 as sales taxes and mineral royalties exceeded forecasts.
Fiscal 2011 general fund balance was further boosted by an accounting change that moved several special revenue funds into the general fund. This change increased unrestricted general fund balance by $5 million to $18.9 million or a high 67% of spending. Liquid assets in the general fund were also robust at $23.2 million or 10 months of operating costs.
USE OF FUND BALANCE IN 2012 & 2013 FOR CAPITAL
The fiscal 2012 general fund budget originally appropriated $5.1 million (25%) of fund balance for drainage, roads, and other capital items but the parish estimates this draw-down was narrowed to $2.3 million on a budget-basis (unaudited; Dec. 31 fiscal year) due to surplus funds carried-forward from the prior year. Sales taxes through November 2012 were up 7.4% from prior year-to-date totals and much better than the budgeted 4% decline. The fiscal 2013 $28.7 million general fund budget is 2.3% below the 2012 budget and calls for a similar $3.7 million use (equivalent to 12% of spending) of general fund balance to fund capital items. On a GAAP basis the ending 2013 unrestricted fund balance would decline to a still solid 45% of spending.
Fitch notes the maintenance of high reserves is critical to rating stability and a key mitigant to the parish's exposure to volatile revenue sources and a concentrated economic base. Fitch also recognizes the parish's expenditure flexibility, demonstrated by its past willingness to defer, reduce, or eliminate the pay-go contributions for capital improvements.
INCREASING BUT STILL MANAGEABLE PENSION COSTS
The parish participates in three separate pension programs for municipal employees, police, and firefighters, and each plan's benefits and contributions are set by the state legislature. The city fully funds its actuarially determined required contributions but has seen sharp increases in the required contribution rates due to poor investment returns. Since fiscal 2009, the contribution rate for the police plan jumped from 10% to 31.5% of payroll, for firefighters from 13% to 29.3%, and for municipal employees from 6.3% to 10%. Despite the increase pension spending consumed a still affordable 4.7% of 2011 governmental expenditures (excluding capital projects funds) but continued increases may pressure the budget in the near term.
Other post-employment benefits (OPEB) for retiree healthcare are funded on a pay-as-you-go basis. The unfunded liability was $73 million for governmental activities as of Jan. 1, 2010, equal to 0.9% of estimated market value. Fitch views positively the parish's recent actions to reduce the UAAL which include limiting eligibility and reducing the parish's premium contributions.
AFFORDABLE DEBT BURDEN
Overlapping debt ratios are low at $1,293 per capita and 1.9% of market value. Amortization of sales tax and GO debt is average, with 58% retired in 10 years, and the carrying cost is affordable at 9% of governmental expenditures (excluding capital projects funds). Currently defined tax-supported debt plans to expand the parish's sewer system and fund street improvements would not materially impact the debt profile.
SPECIAL TAX BONDS COVERAGE REMAINS STRONG
The parish plans to issue roughly $10.3 million in PIBs in spring 2013 which follows an $11.8 million issuance in 2011 (not rated by Fitch but on parity with outstanding PIBs). The additional PIBs issuance dropped fiscal 2011 coverage of MADS to a still strong 3.3x from 3.7x. The planned 2013 sale would further reduce MADS coverage to 2.9x (estimated). The parish has not indicated plans to sell additional PIBs debt beyond 2013. Fitch notes that the lower coverage level would remain comfortably above the 2.0x ABT. Coverage of library sales tax bonds MADS remains very strong at 5.3x in fiscal 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, LoanPerformance, Inc., and IHS Global Insight.
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