NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AAA' rating on the following Delta Township bonds:
--$5.1 million outstanding capital improvement general obligation limited tax (GOLT) bonds, series 2006 at 'AAA';
--$6.8 million outstanding library GOLT bonds, series 2007 at 'AAA';
--Implied unlimited tax general obligation (GO) rating at 'AAA'.
The Rating Outlook is Stable.
The general obligation limited tax bonds are secured by the town's full faith and credit limited taxing power, subject to applicable constitutional, statutory and charter tax rate limitations.
KEY RATING DRIVERS
STABLE FINANCIAL PERFORMANCE WITH STRONG RESERVES: Management has demonstrated a consistent record of financial stewardship reinforced by conservative fiscal policies. Financial margins and resulting fiscal flexibility are extraordinary with general fund balances exceeding 75% for at least the last five years.
SOLID LOCAL ECONOMY DESPITE TAXBASE DECLINES: The township's tax base is relatively diverse and benefits from its location near the state capitol. Declines in assessed valuation have moderated and socioeconomic indicators are positive.
MANAGEABLE DEBT BURDEN: The township's debt burden is affordable and additional near-term borrowing plans are limited. The township is prudently pre-funding its other post-employment benefits (OPEB) liability and pension obligations are reasonable.
ULTGO AND LTGO ON PAR: The LTGO and implied ULTGO ratings are on par due to the significant financial flexibility represented by the township's substantial reserves.
MAINTENANCE OF STRONG BALANCES: The ULTGO and LTGO ratings are on par due to the township's high level of financial flexibility, represented by strong reserves. Deterioration in reserves beyond the township's policy level may be cause for a distinction between the ratings.
Delta is advantageously located directly west of the state capital city of Lansing on I-69 and I-96. The township's Census 2010 population of 32,408 grew 9% over the last decade.
ABOVE AVERAGE ECONOMIC INDICATORS; MODERATING DECLINE IN TAXBASE
The township is largely residential in nature, though auto industry-related functions are a significant part of the economic landscape, offset by a broader presence of health care and insurance concerns in Lansing and the surrounding area. Socioeconomic indicators are positive with above average wealth and education levels and below average unemployment rates. Per capita income is 24.1% ahead of the state and 13.3% ahead of the nation.
Eaton county (population 108,008) employment trends over the last 10 years have mirrored the state's 1% average annual decline. However, unemployment remained consistently below regional, state and national averages. The June 2013 unemployment rate of 6.9% compared favorably to the state's 9.4% and the nation's 7.6% and reflects 0.2% growth in employment and labor force.
Assessed valuation has declined an aggregate 12% over the past five fiscal years. The most recent decline in 2012 was more moderate signaling potential stabilization of the taxbase. The township projects that 2014 assessed valuation will increase slightly, which Fitch views as realistic based on recent trends in assessed valuation and development activity. The township reports that valuations on residential properties have stabilized and commercial properties are lagging. The taxbase is moderately concentrated with the top 10 taxpayers representing 14.65% of assessed valuation.
AUTO INDUSTRY DEVELOPMENT PLAYS STRONG ROLE IN ECONOMY
The township continues to experience economic expansion. GMC, which operates one of its newest plants within the township's borders, is the largest employer and taxpayer. Under an intergovernmental agreement with the city of Lansing, Delta transferred the GMC plant to Lansing's jurisdiction for 25 years (currently in the tenth year of this arrangement) and in return receives half of the property taxes, calculated at Lansing's higher tax rate.
The GMC plant located in the township is currently operating three shifts, which has contributed significantly to employment. The complex currently employs approximately 3,900 people.
Auto-Owners Insurance (the top taxpayer at 4.71% of 2012 AV) has a multi-year expansion underway. The company purchased a Blue Cross Blue Shield facility, which added the property back to the township's tax rolls and expects to add 300 jobs at this facility. Remodeling of the national headquarters continues with an additional building planned to start by 2014. Company estimates project adding 800 additional jobs over the next several years.
CONSERVATIVE FINANCIAL MANAGEMENT; LARGE CUSHION
Conservative financial management has supported general fund net operating surpluses after transfers for four of the past five years despite a difficult economic environment. The unrestricted ending general fund balance for 2012 is strong at $14.2 million or 93.6% of expenditures, representing a 1.7% increase from $13.9 million or 89.7% of expenditures in 2011.
Fiscal 2012 results were largely on target with expectations, reflecting the township's sound budgeting practices. Property taxes are the leading source of general fund revenues, and continue to experience declines, down 4% in 2012. The township's millage rates are at the Headlee amendment limit, but officials report no need for additional operating millage at this time. Township voters have shown support for millage increases related to special projects.
Expenditures were down nearly 2% in 2012, as a result of successful cost containment efforts including attrition savings and reduced costs associated with contracting out services. The amount of flexibility the town has to further reduce expenditures without impacting services may be limited.
Year-to-date results for 2013 show flat general fund revenues. The township budgeted state statutory aid to increase 2% in 2013. Expenditures are modestly above budget, due in part to the filling of vacancies in the parks department. Also contributing to the increase is a 5% increase in the cost of health insurance premiums, which the township views as its largest area of budgetary pressure. The township reports it is on track to meet budget targets and add to general fund reserves in 2013.
Fitch views management's projections for slow economic growth as reasonable. Management's plans to slowly build back some services reduced over the next few years should be manageable given the township's prudent budgeting and large financial cushion. Projects will likely be focused on infrastructure improvements and the township plans to remain compliant with its conservative policy of keeping the unrestricted portion of ending general fund balance above 50%.
DEBT AND LONG-TERM LIABILITIES
The overall debt burden is manageable at $3,033 per capita and 3.9% of market value. Principal amortization is average with 60% repaid in 10 years. The five-year capital improvement plan totals $102.6 million. Management has no plans to issue debt, but if projects requiring debt financing became a priority voter approval would be necessary. Carrying costs are affordable with the pension annually required contribution, other post-employment benefits (OPEB) expenses, and debt service representing 9.9% of total governmental expenditures.
The township participates in a defined contribution plan for all full time employees and elected officials. The township's firefighters participate in the Municipal Employment Retirement System (MERS). As of Dec. 31, 2011, MERS was 67.5% funded using an 8% discount rate, compared with a Fitch-adjusted estimate of 60.8% using 7%. The township's exposure to the defined benefit plan for firefighters is limited to an annual contribution equal to 9% of payroll; employees cover the remainder.
The township's OPEB obligation is manageable and it is prudently pre-funding this liability. The most recent valuation of the unfunded actuarial accrued liability was $6.6 million, quite modest at less than 1% of market value. Assets held in the OPEB trust fund against the liability result in a funded ratio of approximately 50%.
Additional information is available at 'www.fitchratings.com'.
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, 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