NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following High Point, North Carolina (the city) bonds:
--$6.1 million general obligation (GO) public improvement bonds, series 2014;
--$9.8 million GO refunding bonds, series 2014.
The public improvement bonds are being used to finance various improvements to the city's streets and sidewalks, parks and recreational facilities and firefighting facilities. The refunding bonds proceeds will be used to advance refund bonds for debt service savings. The bonds are scheduled for a competitive sale on April 29.
In addition, Fitch affirms the following ratings:
--$71.4 million outstanding city GO bonds at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the city, secured by a pledge of its full faith, credit, and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: Conservative budgeting and careful monitoring of financial results have led to a highly liquid balance sheet and solid reserve levels.
DIVERSIFYING ECONOMY: The local economy, traditionally rooted in furniture and textile manufacturing, continues to diversify. However, employment has been slow to rebound and income levels are below the national average.
MODEST LONG-TERM LIABILITIES: Overall debt levels should remain moderate, given manageable additional issuance plans and the city's continued adherence to conservative debt policies. Overall carrying costs for long-term liabilities are low despite rapid amortization of debt.
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 unlikely.
CREDIT PROFILE
Centrally located in the Piedmont Triad region of North Carolina, High Point benefits from its location along the I-85/I-40 corridor as well as its proximity to the nearby Piedmont Triad International Airport. The city has exhibited steady growth in population at an average annual rate of 2% since the 2000 U.S. Census; the 2012 population is estimated at 106,586.
STRONG FISCAL POSITION
The city exhibits strong financial management with healthy reserve levels, high liquidity, and generally positive annual operating results. The fiscal 2013 general fund net operating deficit after transfers of $3 million, or 2.8% of spending, was attributable to the planned use of $3.5 million of reserves for capital and is not indicative of structural imbalance. Unrestricted general fund balance dipped from 22.4% to a still strong 18.8% of spending. The city's reserve by state statute, which is primarily to offset accounts receivable, is a source of additional financial flexibility not included in the unrestricted general fund balance. This reserve totaled $7.4 million at fiscal year-end 2013, or an additional 6.8% of spending.
The fiscal 2014 budget maintains the prior year's property tax rate and appropriates $2.6 million of general fund balance. The budget includes a 3.1% increase in sales tax revenues. City management currently expects to either meet or slightly exceed the budgeted sales tax revenues. Fitch believes this expectation is reasonable, given year-to-date results and the city's track record of conservative budgeting. Preliminary expectations for fiscal 2014 from city management are that operations will be balanced but an ice storm in March of 2014 incurred approximately $4.8 million of unexpected expenses, of which $3 million was paid from general fund balance. The city expects to be fully reimbursed for these damages, 75% from FEMA & 25% from the state, but the reimbursement may not occur until after the fiscal year ends.
TRANSITIONING ECONOMY
High Point and the cities of Winston-Salem and Greensboro form the Piedmont Triad, one of the faster growing economic regions of the country. Known as the home furnishings capital of the world for almost a century, High Point is still host of the High Point Market, the world's largest international home furnishings trade show, which is held biannually and remains a crucial source of economic activity for the city.
The economy has expanded and the city has seen significant investments from companies in an array of industries, most notably Ralph Lauren and Volvo. High Point University has more than doubled in size over the past eight years. The city's economy is diverse, with only three of the top 10 taxpayers related to furniture manufacturing. The top 10 taxpayers represent a moderate 8% of taxable property value. The city's seasonally unadjusted unemployment rate in January 2014 was 7.2%, down from 10.2% in the prior year. The unemployment rate improvement was primarily the result of a declining labor force and only slight growth in employment.
Wealth levels in the city are below average, with per capita income at 92% of the state and 83% of the national level. The individual poverty rate is elevated at 19.3% versus 16.1% for the state and 14.3% for the nation.
Taxable valuation has shown good growth, expanding at a compound annual rate of 3.4% since 2004. The most recent tax base reassessment, effective for fiscal 2013, resulted in a moderate 4.1% decline. The effect of the decline was offset by an adjustment to the mill rate, which was set to keep revenues neutral from the prior year.
MODERATE DEBT POSITION
The city's overall debt burden is moderate at $2,389 per capita and 2.85% of full market value. City issued debt is relatively low, with the majority of the overall debt burden consisting of overlapping debt of Guilford County. The city funds a significant portion of its capital plan on a pay-as-you-go basis, which keeps debt levels manageable. In addition, amortization of principal is above average with 70% scheduled for retirement within 10 years.
The city's other long-term liabilities appear manageable. Most of the city's employees participate in the Local Governmental Employees' Retirement System (LGERS), a cost-sharing multi-employer plan administered by the State. Overall (state-wide) the plan is well-funded at 98.5%, or an estimated 97%, when adjusted by Fitch to reflect a 7% discount rate. The city also participates in several smaller plans, including one defined contribution plan. The city funds its other post-employment benefits (OPEB) on a pay-as-you-go basis. The unfunded accrued actuarial liability is low at less than 1% of market value. Carrying costs for debt service, pension and OPEB were affordable at 12.9% of governmental spending in fiscal 2013.
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, Underwriter, Bond Counsel, and Underwriter Counsel.
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=826892
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