Fitch Rates Vestavia Hills (AL) GO Warrants 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'AA+' rating to the following Vestavia Hills, Alabama's (the city) general obligation (GO) warrants:

--$9.7 million GO warrants, series 2014.

The bonds are expected to sell the week of January 13 via negotiation. Bond proceeds will be used to fund new construction related to the relocation of city hall.

In addition, Fitch affirms the following ratings:

--$45.6 million GO warrants, series 2008, 2009A, 2009B, 2012 & 2013-A at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The full faith and credit of the city are irrevocably pledged for the payment of all general obligations. The GO warrants are non-voted, payable from all general fund revenues, with no dedicated ad valorem millage.

KEY RATING DRIVERS

STRONG FINANCIAL OPERATIONS: The city's financial position remains very strong, characterized by ample reserves and liquidity.

DIVERSE REVENUE SOURCES: General fund revenue sources are diverse including property, sales and other taxes. The city has limited ability to raise property taxes, but some flexibility in sales tax and other locally generated revenues such as licenses and fees.

ABOVE-AVERAGE ECONOMIC INDICATORS: The city exhibits above-average economic and demographic factors including high wealth and education levels and low unemployment, benefiting from the employment base of nearby Birmingham.

FAVORABLE DEBT PROFILE: The city's debt burden is moderate with average amortization.

RATING SENSITIVITY

RESERVE POSITION: Fitch expects the city to retain its high reserve position to counterbalance concerns over the somewhat limited economy and inability to raise property taxes, factors that Fitch believes limit the rating to its current level.

CREDIT PROFILE

Vestavia Hills is an affluent residential community with a population of 34,049, located approximately three miles south of Birmingham.

ABOVE-AVERAGE ECONOMIC INDICATORS

City residents benefit from Birmingham's deep, diverse and stable employment base built around the education and health service sectors. Income levels are high, with median household income almost twice that of the state and 64% above the national norms. The city's workforce is highly educated. The city experienced unemployment of 3.7% in October 2013, well below both the state and national rates of 6.3% and 7.0%, respectively.

The city's tax base is diverse. Taxable assessed values (TAV) declined slightly in fiscals 2009, 2010, and 2011 after peaking in 2008; 2012 TAV was flat compared to a year prior. Fitch agrees with city officials' belief that future increases in TAV are likely, due to increases in both residential and commercial construction.

STRONG FINANCIAL MANAGEMENT HAS PRODUCED SOUND RESULTS

City operations are predominantly funded through a mix of property and sales taxes which account for 38% and 32% of general fund revenues, respectively; other taxes and license and permit fees help to round out general fund resources. General fund performance currently is and has historically been strong, characterized by modest surpluses and growing reserves.

Fiscal 2012 unrestricted general fund balance was $11.86 million or a strong 44.7% of expenditures. Unaudited fiscal 2013 results once again show strong performance with an approximate operating surplus after transfers of $549 thousand (1.7% of fiscal 2012 spending), driven by sales tax revenue increases and relatively flat expenditures. The city has additional reserves of approximately $8.4 million which could be used for general operations with city council approval, raising the combined funds' cushion to approximately 65.3% of general fund spending.

The city budgeted a 4.8% increase in expenditures for the fiscal year beginning October 1, reflecting its expectation of strong sales tax receipts and permit fees in fiscal year 2014. Fitch would generally consider the projected 7.8% growth in sales tax as optimistic, although recent robust increases in this revenue source somewhat mitigates this concern.

Proactive management practices such as regular budget meetings with department heads and conservative budget assumptions reinforce the city's dedication to fiscal responsibility.

MODERATE DEBT BURDEN AND MANAGEABLE PENSION OBLIGATIONS

The city's overall debt burden is moderate at $3,726 per capita and 2.5% of market value. Principal amortization is just above average with 61% of total outstanding debt retired within ten years. No near-term debt issuance is planned.

The city contributes to an agent multiple-employer pension plan run by the state. The city's portion of the plan was 66% funded as of Sept. 30, 2012 (approximately 59% funded using Fitch's more conservative 7% rate of return). The unfunded actuarial accrued liability (UAAL) is $18.8 million or a low 0.37% of Market Value. Annual required payments are routinely paid in full by the city and are currently manageable at approximately 3.9% of general fund expenditures. Other post-employment benefits are minimal.

Additional information is available at 'www.fitchratings.com'

In addition to the sources of information identified in the 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,Zillow.com, 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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814359

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Contacts

Fitch Ratings
Primary Analyst
Ronald P. McGovern, +1-212-908-0513
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Barbara Ruth Rosenberg, +1-212-908-731
Director
or
Committee Chairperson
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Ronald P. McGovern, +1-212-908-0513
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Barbara Ruth Rosenberg, +1-212-908-731
Director
or
Committee Chairperson
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com