Fitch Rates Charlotte, NC GOs 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns a rating of 'AAA' to the following general obligation (GO) bonds of the city of Charlotte, North Carolina (the city):

--$130,570,000 GO refunding bonds, series 2014A.

The bonds will be sold via negotiation on or about April 10. Proceeds will refund $150 million in outstanding GO commercial paper. The bonds final scheduled maturity date is July 1, 2034.

Fitch also affirms the 'AAA' rating on approximately $737 million of outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The GO bonds are secured by a pledge of the full faith and credit and unlimited taxing power of the city.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The city has a long history of favorable financial operations and maintenance of high reserves that provide a cushion against unforeseen budgetary challenges or emergencies. The city's diverse revenue base is led by property taxes, and tax rates are regionally competitive and well within the statutory cap.

REGIONAL ECONOMIC HUB: Charlotte remains a major transportation, banking, and commercial center for the southeast and is among the fastest growing cities in the U.S.

DEBT MANAGEMENT FOCUS: Key debt metrics are moderately high; however, current issuance plans are manageable and the city's ongoing commitment to pay-as-you-go capital and significant debt service fund balances further alleviate this concern.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

STRONG FUND BALANCE POSITION

Fiscal 2013 was another strong year for the city with audited results depicting a general fund operating surplus after transfers equal to $20.4 million or 3.7% of spending. Fiscal 2013 general fund available resources of $178.6 million equaled a very high 32.9% of total spending. The calculation of available resources was inclusive of $73.6 million of fund balance restricted by state law but generally considered an available resource by Fitch. General fund balance sheet resources are very liquid, with fiscal 2013 cash and investments totaling $168.3 million or more than 4x current liabilities.

FINANCIAL OPERATIONS EXPECTED TO REMAIN STABLE

The adopted fiscal 2014 budget appropriates a modest $550,000 in existing general fund balance (only 0.1% of the $563.5 million budget) and increases total revenue a reasonable 2.2%. Mid-year results are tracking close to the prior year; as such, the city is anticipating ending fiscal 2014 with another operating surplus.

Property taxes account for approximately 57% of general fund revenue. The city's property tax rate, currently $0.4687 per $100 of assessed value (AV), is well within the statutory cap of $1.50 per $100 AV - providing management a great deal of potential revenue raising capacity (tax levies for debt service are not counted against the rate limit).

The city's fiscal 2014 AV remained somewhat stagnant, but current housing prices are up between 5%-9% according to Trulia and Zillow. Global Insight projects population and employment growth of 1.7% and 2.7% per year through 2018 that should translate to continued tax base growth.

DEBT METRICS MODERATELY HIGH BUT NOT A RATING CONCERN

Overall debt ratios equal 3.7% of market value or a moderately high $4,300 per capita. Additional borrowing outlined in the 2014-2018 capital investment plan is not expected to change debt ratios given the healthy pace of outstanding debt amortization and expectations for continued population and tax base growth. Carrying costs associated with debt and other long-term liabilities for pension and post-employment health benefits are manageable at 20% of fiscal 2013 governmental fund spending. The city increased its property tax rate 7.3% in fiscal 2014 specifically to fund debt costs associated with the capital program.

The city dedicates a notable portion of annual operating revenue to fund capital expenses, alleviating demands on debt. The pay-go capital budget totals $50.7 million this year, funded largely by $27.3 million in auto and sales tax receipts and $10.6 million in property tax revenue.

The city administers a single employer defined benefit pension plan for firefighters and participates in the state plan (LGERS) for all other employees. Pension funding remains exceptionally strong at the state level, and the city's firefighter plan is also solid at 78.5% (based on a Fitch-adjusted 7% investment rate of return).

REGIONAL ECONOMIC CENTER WITH STRONG GROWTH PROSPECTS

Fitch expects the city's role as a regional center for trade, transportation, health care, and financial services will contribute to a general trend of economic growth and stability. Recent expansion within technology, pharmaceutical, and energy sectors has the potential to boost already above-average income indices. The city's labor force is well educated - almost 40% of the adult-age population has a bachelor's degree or higher (140% of the U.S. norm).

Total employment in Charlotte has increased at a compound annual growth rate of 2.0% from 2004-2013 (compared to 0.7% for North Carolina and 0.4% for the nation). The city's December 2013 unemployment rate fell to 5.8%, the lowest mark since 2009.

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, 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

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=825140

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Contacts

Fitch Ratings
Primary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Evette Caze
Director
+1-212-908-0376
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Evette Caze
Director
+1-212-908-0376
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com