AUSTIN, Texas--()--Fitch Ratings has affirmed the following ratings:
--$95.2 million Louisiana Local Government Environmental Facilities and Community Development Authority (the authority) revenue bonds (City of Bossier City Public Improvement Projects) series 2007 at 'A+';
--Bossier City (as obligor for the bonds) implied general obligation (GO) at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by a loan agreement between the authority and Bossier City (the city). Under the loan agreement the city is obligated to make annual appropriations from lawfully available funds to pay debt service.
The city's obligation is absolute and unconditional, not subject to any rights of non-appropriation, abatement, or deduction. The city covenants that it will remain obligated under, and will not terminate, the agreement.
KEY RATING DRIVERS
RATINGS BASED ON CITY'S CREDIT QUALITY: The implied GO and revenue bond ratings are based on the credit quality of the city, as obligor. The revenue bond rating is capped by the implied unlimited tax GO (ULTGO) rating, and the one-notch rating distinction reflects the lawfully available funds pledge and appropriation risk.
SOUND FINANCES & FISCAL CUSHION: The city's operating margins and reserves have improved following a period of recurring deficits. Reserve balances in other governmental funds are significant.
GAMING CONCENTRATION: The city's economy and revenue structure are somewhat reliant on gaming and related activity. The presence of and growth of Barksdale Air Force Base provides a stabilizing effect on the economy but could be negatively affected by the looming federal sequestration, a situation Fitch continues to monitor.
MODERATE DEBT BURDEN: Key debt ratios are considered moderate by Fitch while the rate of payout is average. Future capital needs will be met with pay-go-funding.
IMPROVED PENSION FUNDING: Funding levels for the city's local pension plans have improved due to recent over-funding of actuarially required contributions (ARC). However, the state pensions' low funding levels may require additional contributions which could pressure the city's budget and increase the already high fixed-cost burden.
FISCAL IMBALANCE: Maintenance of balanced financial operations is key to long-term credit stability.
ECONOMIC VULNERABILITY: The city's gaming sector is economically sensitive and remains vulnerable to the competitive Oklahoma gaming environment and gaming legalization risk in Texas.
Bossier City is located in northwestern Louisiana, adjacent to Shreveport. Population growth is continuing and totals 62,745.
ECONOMIC CONCENTRATION IN GAMING; SOME ECONOMIC UNCERTAINTY
The local economy is somewhat concentrated in gaming and related tourism activities; the region is home to several casinos, four of which are located in the city. Fitch views this type of activity as economically sensitive, though during the recession, it was not more economically sensitive than other forms of tourism. The Shreveport-Bossier gaming market continues to be the strongest in the state, but gaming performance is being pressured by competition for the Dallas-Fort Worth market from the tribal casinos in Oklahoma.
A Margarativille casino is under construction and slated to open this summer, and this development is a positive counter to uncertainty around the DiamondJacks casino, which filed for bankruptcy in August 2012 and has yet to find a buyer. The casino employs roughly 650 and continues to operate.
The gaming concentration is balanced somewhat by the presence of Barksdale Air Force Base, by far the city's largest single employer. The base is expanding with a 10-year federal appropriation for the expansion of the Global Strike Command. The sequestration of federal funds could cause some job losses at the base, if the cuts were to become permanent, but Fitch does not presently anticipate movement in the rating from this.
Unemployment has remained well below state and U.S. averages at 5.1% in December 2012, down from 5.5% year-over-year and compared to 5.5% for the state and 7.6% for the U.S. Wealth measures are slightly below average. Per capita income totals 88% of the nation and the poverty rate is 117% of the nation's.
STABILIZED FINANCIAL OPERATIONS
Financial operations improved in 2010 and 2011 following three consecutive years of operating deficits after transfers. The city achieved positive margins in 2010 and 2011 equaling 3.4% and 3.6% of spending, respectively. This was accomplished through a significant 8.5% spending cut in 2010, primarily through reduced employee headcount, coupled with steady gains in primary sales (32% of revenues) and property tax revenues (23%). General fund balance increased 53% during this period, with the unrestricted portion climbing to $10.3 million or 19.5% of spending at the end of 2011.
Officials expect to outperform the balanced 2012 budget on an operating basis (Dec. 31 fiscal year), achieving up to a $500,000 surplus. However a one-time $2.5 million payout for a legal settlement with a private developer will require a draw-down on fund balance. The city has received a $1 million reimbursement from its insurance carrier and may realize full reimbursement of the settlement payout. Excluding the potential reimbursements, unrestricted fund balance would fall but remain with the city's informal 15%-20% fund balance target.
The 2013 budget calls for another small surplus, and appears to include realistic-to-conservative assumptions. Fitch views the city's ability to maintain current reserve levels as a key credit characteristic given the economic risk factors.
RESERVES OUTSIDE OF THE GENERAL FUND ADD TO FISCAL CUSHION
Reserves outside the general fund provide a substantial additional cushion of about a year's worth of operating spending. The Riverboat gaming special revenue fund, which is funded through a tax on gross gaming revenues, functions as a rainy day fund. City ordinance requires a balance of $30 million; excess can be used for capital. The public health and safety permanent fund contains $18 million held in perpetuity from the proceeds of the sale of the Bossier Medical Center. The fund's corpus can only be used with the approval of the state Attorney General, although investment earnings are used for public health and safety needs.
MODERATE DEBT, BUT ELEVATED FIXED-COST BURDEN MAY RISE FURTHER DUE TO POOR PENSION FUNDING LEVELS
Overall debt levels are moderate, the city has no upcoming borrowing plans, and expects to fund its moderate annual capital needs through pay-as-you-go sources. However, debt service was a high 17% of 2011 governmental fund spending (excluding capital projects funds), and amortization is average at 48% in 10 years. In addition to the series 2007 bonds, the city has outstanding about $53 million in sales tax revenue bonds.
The city has two single-employer (SE) pension plans and participates in three of the state of Louisiana's four cost-sharing multi-employer (CSME) plans. The local SE plans are closed to new participants, and each of their funded positions has improved significantly due to recent over-funding of the ARC. The city anticipates the plans will be fully funded by 2017. Actual payments for the city's plans totaled $9.6 million or 12% of governmental fund spending in 2011, and most of the funding comes from a dedicated sales tax.
Contributions to the state-wide plans have increased significantly, driven by the under-funded position and lower investment returns of the CSME police and fire plans. Each plan's benefits and contribution are set by the legislature, and Fitch believes further increases to contribution rates are likely to come out of the current legislative session set to adjourn in June 2013. Total pension payments by the city for the local and state plans increased 12% from 2009-2011 and consumed a high 21.7% of governmental fund spending in fiscal 2011. Continued increases similar in magnitude to the rate hikes seen in recent years could pressure the city's budget and will need to be managed accordingly with spending adjustments.
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, and National Association of Realtors.
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