NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings for Jefferson Parish, Louisiana (the parish) and Jefferson Sales Tax District (the district), LA:
--$16.1 million Jefferson Sales Tax District special sales tax revenue bonds, series 1998 and 2005 at 'A+';
--Jefferson Parish implied ULTGO rating at 'AA'.
The Rating Outlook for the 'A+' special tax rating is Stable.
The Rating Outlook for the 'AA' implied ULTGO rating remains Negative.
The special sales tax revenue bonds are special obligations of the district and are payable from and secured by a 7/8 of 1% sales and use tax levied in the unincorporated areas of the parish and a 1% sales and use tax levied within the town of Jean Lafitte.
KEY RATING DRIVERS
NARROW BUT IMPROVED DEBT SERVICE COVERAGE: Pledged revenues in 2013 provide 1.31x coverage of maximum annual debt service (MADS), which Fitch views as somewhat thin for the rating. Pledged sales tax revenues have demonstrated annual growth since 2009, though growth is projected to moderate in 2014 after strong growth in the prior year.
GENERAL FUND OPERATING DEFICITS: The Negative Rating Outlook for the implied ULTGO rating reflects a trend of somewhat moderate general fund budget deficits and structural budget imbalance. Although the 2014 budget assumes a sizable general fund deficit, the parish is projecting that actual results will be better than budgeted, which has been the case in recent history.
MAINTENANCE OF SOLID GENERAL FUND BALANCES: The parish continues to maintain solid general fund balances, despite the recent operating deficits noted above. Continued maintenance of strong reserves is critical due to the parish's reliance on sales tax revenues, which can fluctuate rapidly with economic cycles.
DIVERSE ECONOMY: Jefferson Parish benefits from its position in the broader New Orleans metropolitan area economy, which continues its recovery from the national recession and Hurricane Katrina. The parish's local economy is diverse and taxable assessed value (TAV) has seen annual growth in recent years. Personal income levels in the parish are above average relative to the state and close to or above national averages. Parish unemployment has decreased and remains lower than state and national levels.
MODEST DEBT BURDEN: Parish debt ratios are modest. Debt amortization is rapid and there are no near-term additional debt issuance plans. Pension funding is fairly sound, and carrying costs, including debt service and retiree related payment obligations are manageable.
BALANCED FINANCIAL OPERATIONS: A sizable operating deficit in the current year, though not anticipated by management, would likely result in a downgrade. Additionally, the current rating assumes the adoption of a budget for 2015 in line with the parish's historically conservative budgeting practices.
SPECIAL TAX RATING PRIMARILY COVERAGE DRIVEN: Fitch caps the rating on the special sales tax revenue bonds at the implied ULTGO rating of the parish as there is indistinct legal separation between the two entities. Improved coverage metrics and coverage dilution protections indicate a trend of rating stability; improvement in the rating would require a significant increase in debt service coverage.
Jefferson Parish is located in the New Orleans metropolitan area and has an estimated population of 434,000, making it the second-most populous parish in the state. The parish is bisected by the Mississippi River and stretches from just outside of New Orleans at its northern end to the Gulf of Mexico at its southern end, encompassing 359 square land miles.
The Jefferson Sales Tax District was formed in 1984 to provide a financing vehicle for wastewater improvements in the parish, and voters in 1998 expanded the authority of the district to include road projects. Proceeds from past bond offerings were used for roadway and sewer system improvements in the parish. The district was created and is governed by the parish's council and the district is audited as a fund within the parish's financial statements.
GROWTH IN PLEDGED REVENUES AND DEBT SERVICE COVERAGE
Pledged sales tax revenues have been showing recovery from recession related declines and the natural waning of retail activity following Hurricane Katrina recovery efforts in 2006 -2008. Pledged revenues have grown 3.2% on average since the low mark of 2009, with growth of 6.1% in 2013 to $47.8 million. As revenues have strengthened coverage on the bonds has improved. Pledged 2013 revenues cover MADS of $36.5 million 1.31x, up from 1.24x based on 2012 pledged revenues.
Year-to-date pledged sales taxes (through May 2014) are showing a decline of 2.6% against the same period a year prior. Despite this, management projects flat to modest 2014 growth reflecting typically stronger collections in the latter part of the year.
MINIMAL RISK TO FUTURE LEVERAGING
The sales tax authorization expires in 2022 precluding future debt issuance without a new authorization. All of the outstanding special tax debt matures in 2022. In addition, the bonds' additional bonds test requires the pledged sales tax revenues collected during 12 consecutive months out of the previous 18 months to equal at least 1.33x MADS.
The parish also has about $25 million of surplus sales tax receipts in a special sales tax reserve fund that, while not pledged, can be drawn on to cover debt service in the event pledged revenues are insufficient. Funds can only be used for capital and debt service, reducing but not eliminating the likelihood that they will be expended for purposes other than debt repayment.
TREND OF OPERATING DEFICITS
Parish general fund operations featured operating deficits for 2007 through 2011 ranging from 1% to 6% of spending. General fund revenues saw flat performance/declines in four of the last six years, with 2013 revenues less than 1% lower than 2008 revenues. Though the parish made spending adjustments, including headcount reductions and pay freezes, recurring expenditures remained in excess of recurring revenues.
Economically sensitive sales tax revenues make up over 1/3 of general fund revenues. The pledged special sales taxes and other various dedicated sales taxes do not flow into the general fund, but flow to separate special funds outside of the general fund. Sales tax receipts demonstrated recession related weakness from 2008 to 2009 but began to recover in 2010, and have shown annual growth since then. Sales tax revenues grew by about 5% in 2013, but management is projecting flat to modest growth for 2014.
General fund operations in 2012 ended with a $3.9 million operating surplus after transfers that increased the general fund unrestricted ending balance to $23.4 million, or 26% of spending. However, the general fund benefited from a $7.9 million transfer from reserves set aside for the payment of a FEMA loan that was ultimately forgiven, without which the general fund would have ended the year in a deficit position. For 2013 the budget assumed a general fund balance draw-down of $8 million. Instead, the general fund ended with a modest $683 thousand surplus, increasing the unrestricted ending balance. The general fund again benefited from a FEMA set-aside transfer of $2.4 million. Excluding this, other one-time transfers in, and certain non-recurring capital spending, Fitch estimates the general fund ended with a modest deficit of about $1.4 million or 1.5% of spending.
The 2014 amended budget assumes a deficit of $13.8 million. However, the parish's general fund budgets are very conservative, including budgeting for unfilled positions, sales tax projections based on figures from two years prior, and actual results have significantly outperformed budgeted expectations in the past. Additionally, cancellation of a previously outstanding FEMA loan has aided financial flexibility by eliminating associated debt service needs. Management is expecting balanced operations for 2014, even with slowing sales tax growth, as overall revenues and expenditures are projected to come in better than budget.
LOCAL ECONOMY PART OF NEW ORLEANS MSA
The parish benefits from its location in the New Orleans area, which continues to recover from the economic downturn and lingering effects of Hurricane Katrina. Parish employment trends have been positive since 2012 following prior year declines/ flat performance, though total parish employment remains at about 92% of pre-Katrina totals. The June 2014 unemployment rate of 5.3% is down from 6.8% a year prior and remains lower than state (5.7%) and national (6.3%) rates. Major employers in the area include health care systems, education, and local government.
Parish income and wealth metrics are good though mixed. Personal income indicators are over 100% of state averages and just under (92%-95%) national averages. Poverty levels are lower than the state but higher than the national average.
Huntington Ingalls, a shipbuilding firm, initiated substantial layoffs in 2010, decreasing its workforce to fewer than 1,000 workers from 4,500. However, its operations at the Avondale Shipyard continue and the firm is conducting a study to determine new uses for the shipyard. Additional economic development activity in the parish includes a new Dyno Nobel chemical production facility to be completed by 2016, a new community college campus, casino expansion, and a planned expansion at the Louis Armstrong New Orleans International Airport.
TAV has seen annual growth in recent years including a 2.2% improvement in 2013. Management expects similar growth over the next year. Local home values have been on an upward trajectory since the recessionary low in 2011, with median values up 7.6% over the past year according to the Zillow.com home value index. The parish's tax base is diverse and major taxpayers include utilities and firms related to retail, banking, real estate, oil distribution, shipping, and manufacturing.
LONG-TERM LIABILITIES MANAGEABLE; FEMA LOAN FORGIVEN
The parish's overall debt ratios are low at $1,263 per capita and 1.8% of full market value in 2013. Special tax debt is retired swiftly (all by 2022) and total direct debt is also rapidly repaid, with 86% retired in 10 years. Management has indicated that there are no near-term debt issuance plans. The parish benefits from various sales taxes and millages that are dedicated for streets and drainage/ sewer capital improvements, including the tax that supports the Fitch-rated bonds.
A previously outstanding $54.8 million FEMA liability has been forgiven in full. The parish had set-aside moneys for repayment of the loan but used a portion of the set-aside for general fund purposes in 2012 ($7.9 million) and 2013 ($2.4 million). An additional $4 million set aside for loan repayment was distributed among other parish funds.
Parish pensions are provided through three pension plans: a local (closed) plan, a state plan and a statewide firefighters plan. Funding levels are fairly sound at 83%, 93%, and 71%, respectively for 2013. Other post-employment benefits for retiree healthcare are paygo funded. Carrying costs, including charges for debt service, pension ARC, and OPEB paygo made up an affordable 14% of governmental fund spending in 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.
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