NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings of Wilmington, Delaware (the city):
--$201 million general obligation (GO) bonds at 'AA-'.
A full list of bonds being affirmed follows the end of this release.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the city, for which its full faith, credit, and unlimited taxing power are irrevocably pledged.
KEY RATING DRIVERS
RESERVES OFFSET REVENUE CYCLICALITY: Continued maintenance of above-average reserves is a key rating consideration, as the city's revenue base is largely dependent on economically sensitive taxes derived from earned income, business profits, and real estate transactions.
MODERATE DEBT PROFILE: Overall debt levels are moderate and principal amortization is above average. Future debt plans appear to be manageable.
LOW PENSION FUNDED RATIO: Pension funded ratios remain weak despite the city fully funding its actuarially calculated annual required contribution. Annual costs represent a notable portion of total governmental spending and are expected to grow as the city pays down the unfunded liability.
DUAL ECONOMIC PILLARS: The city remains one of the nation's largest banking centers, and a sizable healthcare and pharmaceutical presence lends stability to the regional economy.
COMPARATIVELY WEAK SOCIOECONOMIC PROFILE: Economic indicators are sluggish and include below-average wealth levels and a high incidence of poverty.
RATING SENSITIVITIES
The city's ability to manage an economically sensitive revenue stream and spending pressures, including rising pension costs while maintaining above-average reserves is key to maintaining the current rating.
CREDIT PROFILE
The city of Wilmington is located on the western bank of the Delaware River in the northeast corner of the state of Delaware, almost at the midpoint between New York City and Washington, D.C. The 2013 estimated population of 71,525 shows a modest increase since the 2010 census after a gradual decline from the 2000 census.
FINANCIAL SERVICES-DRIVEN ECONOMY
Wilmington's economy benefits from a business climate attractive to the finance, banking, and credit card industries. Several major financial institutions have operations in the city including J.P. Morgan Chase, Bank of America, Citibank, M&T Bank, Capital One 360, and PNC Bank.
A considerable pharmaceutical and healthcare presence lends some diversity to the economy. Christiana Health Care Services and AstraZeneca Inc. N.A. are two of the area's largest employers at 10,400 and 4,500 employees in the metropolitan statistical area (MSA), respectively.
DuPont has been headquartered in the city since 1908 and has been gradually moving employees to its plant outside of the city limits. In late 2014, DuPont announced plans to leave the city by July 2015 and relocate up to 1,000 employees. DuPont will remain a strong presence in the region with 8,100 employees in the MSA. Chemours Co., a subsidiary of DuPont, will move employees to the vacated building and the net job change is expected to be about neutral. The impact on wage taxes is still uncertain as DuPont was the third largest wage tax withholder in 2013. Fitch will continue to monitor the situation as it develops.
Economic indicators generally remain below average, and there are pockets of the city that continue to suffer considerable levels of poverty and blight. The unemployment rate of 6.4% as of December 2014 is down from 8.3% the year before but remains above the national average of 5.4%.
Per capita money income lags behind the state and national averages at 84.5% and 89.5% respectively, and median household income is well-below state and national levels, at 64.7% and 73%, respectively. The individual poverty rate is a high 23.9%.
STRONG RESERVE LEVELS
The general fund experienced a $531,066 deficit in fiscal 2014, although a reimbursement of $3.5 million from the water and sewer fund increased the unrestricted fund balance to $40.6 million, or an ample 27.8% of spending. The city's formal fund balance policy is equal to 10% of budgeted expenditures.
Wage taxes were the largest source of revenue in the general fund in fiscal 2014 at 38.4% of revenues and are imposed on employees working within the city limits, allowing the city to tax the large amount of suburban commuters. Property taxes were the second largest source of revenue at 26.2%. Public safety, covering police, fire, and emergency medical services, is the city's largest expenditure at a substantial 58% of spending in fiscal 2014. Fitch feels that the city's high violent crime rate would limit its flexibility to make public safety spending cuts.
The fiscal 2015 budget was adopted with a 5% property tax rate increase and a $1.4 million addition to fund balance. Year-to-date operations show a $1.4 million negative budget variance in public safety spending due to unanticipated overtime costs. DuPont's relocation has created some uncertainty in regards to wage tax collections, although it is too early to be certain of the impact.
LOW PENSION FUNDED RATIOS
Substantially all of the city's employees participate in one of five closed single employer plans or the cost-sharing multiple employer state plan. For the city's own plans, the estimated aggregate unfunded actuarial accrued liability is $185.1 million (when adjusted by Fitch to a 7% discount rate) and the funded ratio is very low at 48.3%.
Pension costs account for a high 13.9% of total governmental spending and according to the city's multi-year forecast, pension costs are expected to continue to increase over the next five years. Positively, Fitch expects the city to continue fully funding its annually required contributions.
Other post-employment benefits (OPEB) are offered to all employees and contributions are made on a pay-as-you-go basis. Total carrying costs for debt service, pension and OPEB were a high 22.9% of governmental spending in fiscal 2014.
MODERATE DEBT PROFILE
The debt burden is moderate at $3,773 per capita and is not expected to materially change as debt plans appear manageable. The city plans to issue $40 million of debt this spring for various capital projects, roughly half of which will be paid by revenues from the water/sewer fund. Amortization is above average with 67.5% of principal retired within 10 years.
LIST OF BONDS COVERED BY RATING ACTION
Fitch affirms the 'AA-' rating on the following GO bonds of the city:
--$3.1 million GO bonds, series 2005;
--$0.7 million GO bonds, series 2006A-1;
--$30.8 million GO bonds, series 2007A;
--$48.2 million GO bonds, series 2008A;
--$38.3 million GO bonds, series 2010A;
--$25.4 million GO bonds, series 2011A;
--$13.9 million GO bonds (federally taxable), series 2011B;
--$2.7 million GO bonds (federally taxable - direct pay new clean renewable energy conservation bonds), series 2011C;
--$37.8 million GO bonds, series 2013A.
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, Underwriter Counsel, Trustee.
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=980010
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