NEW YORK--(BUSINESS WIRE)--Fitch ratings has affirmed the 'AAA' rating on the following city of Bowie, Maryland (the city) general obligation bonds (GOs):
--Approximately $14.3 million GO bonds, series 2009.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the city, secured by its full faith, credit, and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: City management has a history of budgeting conservatively which has contributed to an impressive string of surplus results in the general fund and a robust unrestricted general fund balance.
PROXIMITY TO DIVERSE LABOR MARKETS: Proximity to broader labor markets in Washington, D.C. and Baltimore mitigates risk to the city's somewhat limited economy.
ABOVE-AVERAGE SOCIOECONOMIC FACTORS: The city exhibits favorable socioeconomic characteristics, including above-average income and educational achievement, and low unemployment rates.
LOW DEBT BURDEN: The debt burden remains low owing to sizable annual capital contributions from general fund sources. Future capital needs are manageable and flexible, and no new borrowing is anticipated.
RATING SENSITIVITY
The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
Bowie is located approximately 20 miles northeast of Washington, D.C. and 30 miles south of Baltimore. Bowie is the largest municipality in Prince George's County (GO rated 'AAA' with a Stable Outlook by Fitch) with an estimated 2012 population of 55,232.
ABOVE-AVERAGE SOCIOECONOMIC INDICATORS
The city's proximity to large labor markets, and the well above-average educational achievements of the local labor force, contribute to a history of very low unemployment. The city's unemployment rate in December 2012 was 5.3%, compared to 6.7% for Maryland and 7.6% for the U.S.
The city's taxbase is approximately 82% residential in nature and fairly affluent, as measured by per capita income and median household income 117% to 142% higher than the state average. The city's top private employers include several large retailers (Wal-Mart, Target, Giant Foods, Lowe's, and Macy's), Inovalon (a leading medical informatics service provider), and Larkin Chase Nursing Home. Additionally, Bowie residents benefit from employment opportunities at the National Security Agency, Fort Meade, and Bowie State University, which are all located within 10 miles outside the city limits.
IMPACT OF SEQUESTRATION ON CITY
Bowie does not have any major programs that are federally funded which could be affected by sequestration (steep cuts in federal spending). The most immediate effect is a 5% reduction in the community development block grants, which equates to less than $8,000 annually. According to city management, other impacts due to sequestration are not immediate.
VERY STRONG FINANCIAL PROFILE
Conservative budgeting and sound financial policies have helped guide the city to an impressive streak of surplus results in the general fund dating back to at least fiscal 2004. The city realized a $3.2 million surplus in fiscal 2012 after transfers (7.9% of fiscal 2012 spending), which increased the unrestricted general fund balance to $35.6 million or a very strong 88.9% of total spending. Reserves remained well above the city's prudent 25% reserve policy.
The adopted fiscal 2013 budget totals $43.2 million, which is $1.1 million or 2.6% higher than the fiscal 2012 budget, and appropriates $1.5 million in existing fund balance (3.4% of budgeted general fund spending). Management, however, is forecasting a surplus of approximately $1.4 million in fiscal 2013 (3.2% of budgeted general fund spending). Strong year-to-date performance is primarily attributed to a projected $1.8 million in expenditure savings in the areas of public safety and public works.
Officials believe there is room to achieve cost savings across functional areas of the general government, noting the absence of cuts to core services to date. Additional budgetary flexibility is derived from the city's ability to adjust its tax rate and levy without restriction or limit (other than a requirement to publicly advertise any rate which increases revenue above the prior fiscal year).
The tax rate of $0.40 per $100 of assessed value remains below average relative to other incorporated municipalities in the county. The fiscal 2013 budget maintains a constant real property tax rate for a third consecutive year, following increases of 5.3% for fiscal 2011 and an 8% increase for fiscal 2009. Prior tax increases were necessary to offset the loss of approximately $2 million in annual highway user revenues from the state and to fund the city police force (property owners received a reduction in county taxes to recognize services performed by the city).
TAXBASE PRESSURES PERSIST
Properties subject to triennial assessment for fiscal 2012 experienced significant value deterioration, resulting in a 7.3% decline in the city's overall tax base to $5.9 billion. The city's fiscal 2013 AV increased by approximately 1.8% to $6 billion, with estimated 2% to 4% AV increases in years thereafter.
The homestead tax credit, which has served to cushion the city against declining property values since the onset of the housing downturn and recession, has been reduced to approximately $330 million in fiscal 2012 from $2.5 billion in fiscal 2011.
LOW DEBT BURDEN
Overall debt is low at 1.3% of market value and $1,471 per capita, and annual debt carrying charges consume just $1.3 million or approximately 3.3% of total spending.
The city's debt levels are a reflection of its long-standing commitment to pay-as-you-go capital. The city expects it will continue to fund $2 million in annual capital expenditures from general revenues. Capital pressures are minimal, and largely related to recreation projects which can be deferred if necessary.
The fiscal 2013 - 2018 capital improvement plan identifies only $24.9 million in capital projects (or 0.4% of market value) excluding previous and current year expenditures. The most expensive projects are for roads, parks, and recreational facilities, which can be deferred to later years and will be reassessed annually. Funding for the capital program is largely derived from general revenues, and the city does not plan to issue additional debt.
MANAGEABLE RETIREE COSTS
The city's pension liability is limited to its annual contribution to a defined contribution 401(k) plan and participation in the State administered Law Enforcement Officers' Pension System. Annual pension costs consume approximately 3% of spending. Other post-employment benefits (OPEB) are very limited. No employee received OPEB in fiscal 2012, and the unfunded OPEB liability is less than $725,000.
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 the 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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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