Fitch Affirms St. Louis IDA's (MO) Lease Revs at AA-; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AA-' rating on the following bonds issued by the Industrial Development Authority of the City of St. Louis (MO) (the IDA):

--$25.8 million taxable leasehold revenue bonds, series 2010A-1 (St. Louis Public Library Project - Recovery Zone Economic Development Bonds - Direct Pay);

--$11.2 million taxable leasehold revenue bonds, series 2010A-2 (St. Louis Public Library Project - Recovery Zone Economic Development Bonds - Direct Pay);

--$13 million variable rate taxable leasehold revenue bonds, series 2010A-3 (St. Louis Public Library Project - Recovery Zone Economic Development Bonds - Direct Pay).

In addition, Fitch affirms the 'AA' implied unlimited tax general obligation (ULTGO) rating on the St. Louis IDA, MO (the district).

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the IDA payable primarily from rental payments to be made by the district under a lease agreement, subject to annual appropriation. Bondholders are also secured by a leasehold interest in the district's central library, and a standard cash-funded debt service reserve.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The district has a history of conservative budgeting resulting in operating surpluses and substantial financial reserves. Revenue raising capacity is extremely limited, but the district seems willing and able to reduce expenditures as needed and operating responsibilities and risks are somewhat limited.

MIXED LONG-TERM LIABILITIES: The district's debt levels are high and the pace of principal repayment is very slow, however, there are no plans for additional borrowing, pension costs are low, and the district does not provide retiree healthcare benefits.

REGIONAL HUB WITH ECONOMIC CHALLENGES: The district is coterminous with St. Louis, the anchor of an expansive and diverse regional economy; however, socioeconomic indicators are below average with a declining population featuring low wealth levels, and high poverty and unemployment rates.

ANNUAL APPROPRIATION RISK: A single-notch rating distinction between the leasehold revenue bonds and implied ULTGO reflects the combination of risk to annual appropriation with a leasehold security interest in an asset considered essential to the basic governmental operations of the district.

RATING SENSITIVITY

FINANCIAL STABILITY: The ratings are sensitive to the maintenance of the district's strong financial position, which will likely face some pressure given recent declines in taxable assessed value (TAV) and a current tax rate set at the legal limit.

CREDIT PROFILE

The district, which is coterminous with St. Louis (the city), consists of the central library and 15 branch locations. The district is governed by an independent board of directors whose members are appointed by the city's mayor and confirmed by the city's board of aldermen.

STRONG FINANCIAL RESERVES

The district's finances are the primary credit positive. Operating surpluses (after transfers) have been generated in six of the prior seven audited fiscal years, including a $2.9 million addition to fund balance (or a strong 10.6% of spending) in fiscal 2013. The unrestricted general fund balance for fiscal 2013 was $14.9 million or 54.5% of expenditures. The district does not have a formal fund balance policy, but the unreserved or unrestricted fund balance has equaled no less than 46% of spending each year since fiscal 2007. The fiscal 2014 budget reflects a fairly modest $700 thousand deficit.

TAX BASE DECLINES HEIGHTEN RISK TO REVENUE CONSTRAINTS

The district's very limited revenue raising capacity represents a credit concern despite its very strong reserves. District revenues are almost exclusively derived from a dedicated property tax levy at a rate of 5.6 mills in fiscal 2014, equal to the maximum library tax rate approved by voters at a 1994 referendum. The district's tax revenue raising capacity is further constrained by certain statutory tax caps.

The district had raised its tax rate from 5.02 mills in fiscal 2010 to help counter a decline in its tax base. TAV has declined 1% in fiscal 2011, 3.6% in fiscal 2012, and 4.8% in fiscal 2013. Home values have risen very modestly on the year according to current information from Zillow and Trulia.

Taxpayer concentration is moderate with the ten largest property owners representing 12% of TAV. Property tax collections of the city have historically been weak; however, actual tax revenues of the district tend to outperform budgeted projections.

The district's expenditure flexibility is viewed more favorably given the absence of labor related spending pressures and manageable budget cuts enacted to date.

HIGH DEBT BURDEN TEMPERED BY LIMITED CAPITAL NEEDS

Overall debt is high at $4,026 per capita and 6.8% of 2012 market value. Debt retirement is notably slow, with merely 21% retired in ten years. The bulk of the district's debt is related to the central library renovation project which has been completed. Most of the other libraries were renovated recently, so capital needs should be minimal for the foreseeable future. Debt service consumes approximately 20% of the general fund budget, which is somewhat high but not atypical of a limited purpose governmental entity.

The series 2010A-3 bonds pay a fixed rate of interest through March 15, 2020, after which it resets annually to an interest rate determined by a formula based on LIBOR and the series' credit rating, statutorily capped at 10%. These bonds do not carry a put option and the district is not required to secure a liquidity provider.

LIMITED RETIREE LIABILITIES

The district participates in the city's cost-sharing multiple employer pension plan, which is slightly underfunded at an estimated 68.9% (using Fitch's 7% investment return assumption) as of October 1, 2012. The district's pension payment for fiscal 2013 was $1.34 million, approximately 4.9% of general fund expenditures. The district does not provide other post-employment benefits. Carrying costs, reflecting debt service and pension expenses, are moderate at 23.5% of governmental spending.

LARGE, DIVERSE ECONOMY; WEAK SOCIOECONOMIC INDICATORS

The downtown area remains the largest employment center in the region focusing on health, education and business services, in addition to convention and entertainment enterprises. Leading employers include Washington University (14,422), BJC Health System (12,225), and St. Louis University (10,140). Notable companies with headquarters in the city include Wells Fargo, Stifel Financial, Energizer Holdings and Anheuser Busch InBev.

Socioeconomic indicators for the district are below average. The unemployment rate is elevated at 9.0% as of January 2014, having moderated slightly from 9.7% prior year, and is well above state (6.8%) and national (6.6%) averages. District population declined 8.3% between the 2000 and 2010 census, to 319,294, while the MSA has experienced 4% growth since 2000. Wealth indicators are weak, with per capita income at 87% and 79% of state and national averages, respectively. Notably, poverty is nearly twice the national average.

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

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=829314

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Contacts

Fitch Ratings
Primary Analyst
Sheena Gordon
Associate Director
+1 212-908-9115
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Eric Friedman
Director
+1 212-908-9181
or
Committee Chairperson
Mike Rinaldi
Senior Director
+1 212-908-0833
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908 0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Sheena Gordon
Associate Director
+1 212-908-9115
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Eric Friedman
Director
+1 212-908-9181
or
Committee Chairperson
Mike Rinaldi
Senior Director
+1 212-908-0833
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908 0526
elizabeth.fogerty@fitchratings.com