NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'AAA' rating to the following general obligation (GO) bonds of the City of Falls Church, VA:
--$10,865,000 general obligation public improvement bonds series 2014.
The bonds are scheduled for competitive sale on November 20. Proceeds will be used for expansion of an elementary school and various other capital improvements.
In addition, Fitch affirms the following ratings:
--$37 million general obligation bonds series 2011, 2012 and 2013 at 'AAA';
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the city for the payment of which the city's full faith and credit and unlimited taxing power are irrevocably pledged.
KEY RATING DRIVERS
TAXBASE GROWTH, HIGH WEALTH The city's $3.6 billion taxbase grew a strong 12.9% since its recessionary low in 2010. Resident wealth levels are more than double the national average.
STRONG FISCAL MANAGEMENT City leaders have raised tax rates as needed, which together with conservative budgeting has resulted in a healthy balance sheet.
MODERATE DEBT METRICS Debt burden is low reflecting the substantial taxbase and debt per capita is moderate. Capital needs to expand school capacity are substantial, although the potential for economic development revenue is a potential mitigant.
LOW CARRYING COSTS Debt service, pension and other post-employment costs (OPEB) consume a modest percentage of governmental expenditures.
RATING SENSITIVITIES
CONTINUED STRONG FINANCIAL POSITION: 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
Falls Church is located within the Capital Beltway, approximately 10 miles west of the District of Columbia. The city occupies a small geographic area of 2.2 square miles and is home to 13,508 residents.
RESIDENTIAL TAXABLE VALUES DISPLAY VIBRANT RECOVERY
The city is experiencing significant new development, which is increasing population density and the concentration of mixed use buildings. The $3.6 billion taxbase is approximately 75% residential; and commercial property taxbase growth is moderately outpacing residential growth. Overall, taxable values have increased each year since the recessionary low in 2010.
According to Zillow.com, residential values grew a strong 5% over the past year. Fitch expects further growth in taxable values given the strong residential market as well as several sizable mixed use development projects under construction and in the pipeline.
The shift to higher density housing, largely condominiums and townhouses, has contributed to moderate population growth. Resident wealth levels are very high with median household income 228% of the national median and the poverty rate is a low 3.9%. Resident education levels are exceptionally high: the percentage of the population with a bachelor's degree is 72% compared to the 28% nationwide average.
AMPLE FUND BALANCES UNDERSCORE FINANCIAL STRENGTH
After general fund balance narrowed from three years of operating deficits during the recession, the city took action to restore reserves. Operating surpluses were achieved in 2011 through 2013 through a substantial increase in the tax rate, although results were also aided by underlying economic growth and expenditure control. New commercial developments, including restaurants, retail stores and supermarkets have aided sales and meal tax receipts.
The city closed fiscal 2013 with a $2.4 million operating surplus, bringing the unrestricted fund balance to $16.8 million, or a strong 24.2% of spending. Operations are primarily supported by property taxes which account for 65% of fiscal 2013 revenues. The largest expenditure is for schools, accounting for 45% of general fund expenditures. The city's contribution to school funding was cut during the economic downturn, and the fiscal 2013 contribution reflects a 9.9% increase, bringing the contribution to a level in excess of the prerecession funding.
Preliminary and unaudited fiscal 2014 results indicate continued strong general fund operations, with an unrestricted balance of 56% of expenditures. This high balance reflects the sale of the city's water system and inclusion of a portion of the proceeds ($21.8 million) in the general fund balance, reserved for non-recurring purposes. In 2013 voters approved the sale of the city's water system to the Fairfax County Water Authority (FCWA); the sale agreement closed in 2014, with a portion of the proceeds used to retire outstanding water system GO debt. Absent these one-time sources and transfers, general fund revenues exceeded expenditures by $2.8 million.
The fiscal 2015 budget appropriates $9.2 million of water sale reserve funds to eliminate the city's unfunded pension fund liability, and $9.6 million is allocated for long term capital reserves for projects with a useful life of at least 20 years, and $1.7 for capital reserves for capital assets with a shorter useful life. This reserve is expected to be maintained in the general fund until the capital purposes are determined. Additionally, the 2015 budget includes a $4.6 million appropriation of fund balance for nonrecurring expenditures.
LOW DEBT
Debt burden is a low 1.6% reflecting the strong property values and significant commercial taxbase, while debt per capita is average at $4,288. Debt service comprises only 5.7% of fiscal 2013 general fund expenditures, well within the city policy limiting debt service to no more than 12% of expenditures. Debt is rapidly retired: the fast payout and expected growth in taxable values will enable the city to easily absorb moderate levels of future borrowing.
The five-year Capital Improvement Plan for fiscal 2014 - 2018 identifies $190 million in capital needs. The most significant of future projects is construction of a new high school in 2017 for an estimated at $99 million. The existing high school is at capacity, utilizes temporary classrooms and enrollment is expected to grow. The school debt issuance may be subject to voter approval, and the borrowing amount is not yet determined as the city is considering options for using land annexed with the water sale for economic development thereby offsetting a portion of the school construction costs.
The city does not have exposure to variable rate debt, derivatives, or cash flow borrowing. The city's pension plans are well funded and annual contributions to both pension and other post-employment benefits consume an affordable share of the budget. Total carrying costs, debt service, pension and OPEB consume a moderate 12.4% of fiscal 2013 government spending.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com.
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=913474
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