NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to the following Lewes, Delaware (the city) bonds:
--$6.9 million general obligation (GO) refunding bonds, series 2015.
The bonds are expected to sell competitively on March 17, 2015. Proceeds will be used to refinance a portion of the city's outstanding GO bonds, series 2005. The remainder of the series 2005 bonds will be cash defeased by the Lewes Board of Public Works.
In addition, Fitch affirms the following rating:
--$10.85 million outstanding GO bonds, series 2005 at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the city backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG RESERVE LEVELS: Financial operations remain structurally balanced and the city maintains good budgetary flexibility in the form of strong general fund reserves. The reserves, although a small dollar amount, somewhat mitigate risk related to the cyclical nature of the city's economic base and key revenue streams.
LIMITED, SEASONAL ECONOMIC BASE: Local economic activity centers on tourism and leisure spending, and healthcare. Per capita income levels are high, reflecting the very small year-round population of affluent retirees. The regional employment picture continues to improve and unemployment remains considerably lower than the national average.
POSITIVE LONG-TERM LIABILITY PROFILE: Fitch considers key debt ratios to be generally favorable. While the city does not prepare a formal multi-year capital planning document, reported needs are minimal and there are no plans to issue additional long-term bonds. Post-employment benefit obligations are modest.
RATING SENSITIVITIES
STABLE FINANCIAL OPERATIONS: The rating is sensitive to shifts in fundamental credit characteristics, including the city's stable financial performance. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Lewes is located in southeastern Delaware in Sussex County, along the Delaware Bay and bordered to the east by the Cape Henlopen State Park. The city has a small year-round population, an estimated 2,896 in 2013, that expands during the popular summer tourism months.
OPERATIONS REMAIN BALANCED AND RESERVES HEALTHY
The city's revenue base is diverse, led by property taxes which represent nearly 45% of budgeted revenue in fiscal 2015. The city's property tax rate and levy are not subject to statutory or other restriction. Fitch views this as an important rating consideration as the city is near full development and not expected to experience significant tax base growth.
Other key revenue streams include franchise fees paid by the Board of Public Works (14.5% of fiscal 2015 budgeted revenue), transfer taxes (12.9%) and rental taxes (9.3%).
The city ended fiscal 2014 with an operating surplus and an unrestricted fund balance of $2.6 million or a strong 36.7% of spending. An additional $1.4 million of restricted fund balance in the general fund and $2.2 million in the capital projects fund could be used for certain general governmental purposes (debt reduction, capital projects, or public safety). The city does not have a formal fund balance policy, which Fitch views as a credit weakness, although actual reserves have consistently been solid.
The fiscal 2015 budget was structurally balanced and did not include the use of reserves. Expenditure demands are driven by public safety but Fitch does not view them as onerous. Year to date projections for fiscal 2015 (ending March 31) appear to be tracking well compared to the budget and the city expects to end the year with balanced financial operations and a stable fund balance.
City council will vote on the proposed fiscal 2016 budget on March 16. The proposed budget is balanced without any changes to the property tax rate.
TOURISM-DRIVEN ECONOMY
The city's tax base is predominantly residential and exhibits a very high market value per capita that reflects a large number of vacation properties and the above-average wealth characteristics of the community. Per capita money income for the city is 30.4% higher than the national average.
Employment data are not available for the city given its small size. In Sussex County (with an estimated 2013 population of 206,649), the December 2014 unemployment rate of 5.1% compares favorably to the national average of 5.4%. The largest local employers are in the health care and education sectors including Beebe Healthcare with 1,600 employees, Cape Henlopen School District (775), Harbor Health (190), SPI Pharma (70) and the University of Delaware College of Marine Studies (65).
MANAGEABLE DEBT POSITION
Following the current refunding, the city's total debt will be an affordable 0.6% of market value and $2,383 per capita, reflecting the small year-round residential population. As a small community that is nearly built out, capital needs are limited and the city does not have current plans for additional long-term debt. Routine capital needs are addressed through dedication of a portion of the city's transfer tax revenue.
MODEST PENSION COSTS; NO OPEB LIABILITY
Contributions to a state pension plan for police officers and a city sponsored defined contribution plan for general employees are modest and Fitch does not expect them to become a spending pressure. The proposed fiscal 2016 budget includes approximately $186,500 (3.4% of general fund spending) in pension costs. The city does not provide other post-employment benefits.
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, and 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=981020
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