NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the `AAA' ratings for the following East Grand Rapids, MI (the city) bonds:
--$1,445,000 Michigan Transportation Fund GO limited tax (LTGO) bonds, series 2005
The Rating Outlook is Stable.
SECURITY
The LTGO (Michigan Transportation Fund) bonds are payable from the city's ad valorem tax, subject to constitutional, charter and statutory limitations as well as the city's allocation of amounts received from the state's Transportation Fund (the fund), which funds are generated from state-wide vehicle license and motor fuel taxes.
KEY RATING DRIVERS
SOLID FINANCIAL FLEXIBILITY: Budgetary flexibility is enhanced by consistently strong unrestricted general fund balances.
STRONG FINANCIAL MANAGEMENT: The city benefits from a strong financial management team that practices conservative budgeting and adheres to sound financial policies.
SOLID, DIVERSE REGIONAL ECONOMY: The city is an affluent suburb in the Grand Rapids metropolitan area where robust recent job growth has resulted in a low unemployment rate. Residents benefit from employment opportunities both within the city and throughout the Grand Rapids metropolitan area.
STABLE TAX BASE: Taxable Values (TV) have been stable and growing providing a consistent base for property tax revenue.
HIGH DEBT/AFFORDABLE CARRYING COSTS: The city's overall debt burden is elevated due to overlapping debt from the local school district; however, the city's carrying costs for debt service and retiree benefits are affordable.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the city's ability to maintain structural balance. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
ABOVE AVERAGE ECONOMY
East Grand Rapids is a small, affluent suburb located just east of Grand Rapids in western Michigan. The bedroom community has a stable estimated population of around 11,182 in 2013. Median household income in 2012 was over 215% and 198% of the state and national levels, respectively. County unemployment rates have fallen over the past two years to 4.6% in August 2014, well below state and national levels.
The city benefits from the strong regional economy which includes major employers such as Spectrum Health, Meijer, Inc. and Steelcase Inc. The local school district and Spectrum Health Hospital(Blodgett campus) are the city's major employers. Spectrum Health recently completed a $100 million renovation, which increased total employment to 1,800 within the city. Additional current economic activity includes increasing building permits for new single-family homes and condos.
STABLE TAX BASE
An overall positive trend of TV over the past five years demonstrates the desirability and stability of the city tax base. TV growth of 3.7% and 3.6% in the past two fiscal years offset a modest 1.4% decline in 2011. Market value per capita is high at over $115,000 for 2014.
As a residential community, the city's tax base is diverse and the majority of its taxpayers are individuals. The base benefits from a downtown business district and the Gaslight Village retail area. Foreclosures in the city are minimal and property tax delinquencies have decreased in every year since 2010. The city's millage rate has remained level for five years and was en subject to a roll back due to the Headlee amendment in 2014 and 2015.
BUDGETARY BALANCE
Residents benefit from a high level and quality of local municipal services. The city budget is heavily dependent on property tax revenues which account for approximately 70% of total general fund revenues. Unlike most Michigan localities, property tax revenue has not been subject to declines caused by the economic downturn. State shared revenue provides less than 10% of the city's general fund revenues and the city conservatively budget statutory state aid offsetting concerns about state cuts to aid due to its fiscal issues.
Expenditure growth has been controlled by requiring new hires to participate in a defined contribution plan as opposed to defined benefit plan. Since 2002, all new city union and non-union employees were transitioned to the defined contribution plan. Currently, only 6 of the city's 67 total workforce remains in the defined benefit plan. In addition, the city has controlled expenditure growth through wage freezes, and careful monitoring of new positions and overall spending.
Overall, fiscals 2013 and 2014 results yielded small surpluses to the general fund, bringing total unrestricted fund balance to a strong $2.9 million or 29% of expenditures. Fiscal 2015 is expected to maintain budgetary balance and strong reserve levels given management's conservative revenue estimates, positive tax base and property tax growth and demonstrated expenditure controls. Fitch expects the city to continue to exceed its informal minimum general fund balance policy of 20% of general fund expenditures and to maintain significant financial flexibility.
MIXED DEBT PROFILE
Overall debt levels are high at over $7,288 per capita and 6.26% of tax base. These figures are largely attributable to a sizable borrowing by the local school district which comprises 80% of total debt outstanding. City debt amortization is average with 55% retired within 10 years. Total carrying costs for debt service, pension and other post-employment benefit (OPEB) costs in 2014 were moderate at 19% of total governmental spending.
Pension costs for the city remain manageable due to the shift from defined benefit to defined contribution plans. City retiree contributions in fiscal 2014 were $765,348 to the state defined benefit plan and $481,574 to the city's defined contribution plan. The estimated Fitch adjusted funded ratio for state pension plan, was a very low 55% for 2013. The city administers a single-employer healthcare plan, which is funded to cover normal costs over a period of 15 years resulting in a small net liability of $207,875 in fiscal 2014.
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=942356
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.