NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' rating on approximately $136 million of Overland Park, KS (the city) unlimited tax general obligation bonds (ULTGOs).
The Rating Outlook is Stable.
The bonds are general obligations of the city backed by the city's full faith and credit and its ad valorem tax, without limitation as to rate or amount.
KEY RATING DRIVERS
STRONG ECONOMIC BASE: Overland Park enjoys a deep and diverse local economic base, reflected in its low unemployment rate and strong assessed value growth.
ABOVE AVERAGE SOCIOECONOMIC PROFILE: Wealth levels are above average and residents are highly educated.
SOLID FINANCIAL OPERATIONS: Unaudited 2014 results show a third straight year of positive operations, augmenting the already sizable reserves.
MODERATE LONG-TERM LIABILITIES: Overall debt levels are moderate and direct debt is rapidly amortized. Pension and other post-employment benefit (OPEB) liabilities are manageable.
FUNDAMENTAL CHANGES: The rating is sensitive to the shifts in the city's fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
Overland Park, the second largest city in Kansas, is an affluent community located within the Kansas City metropolitan area. The city benefits from its location, extensive transportation network, and well-educated workforce, which drive continued growth of the deep and diverse local economy.
STRONG ECONOMIC BASE
The city is home to several Fortune 500 companies, with Sprint as its leading employer. Both the financial services and professional and business service sectors account for a greater percentage of total countywide employment than the national average. The city's workforce is highly educated with 58% attaining higher education versus 29% nationally.
Continued economic growth is evidenced by the below average unemployment rate, steady sales tax growth, and increases in assessed value. The city's February 2015 unemployment was low at 3.6%, relative to the state's rate of 4.5% and the national rate of 5.8%. After three years of small gains in taxable assessed value, the city has experienced two years of extensive growth, increasing 6.9% in 2014 and approximately 6.7% in 2015. Further growth is expected as there continues to be substantial permitting activity.
SOLID FINANCIAL OPERATIONS
The city finished 2013 with an $11.6 million general fund surplus, its second consecutive surplus after four consecutive years of operating deficits. The surplus increased unrestricted fund balance to $49.5 million or a healthy 37.2% of expenditures. The surplus was driven by growth in sales tax and development fee revenues, as well as conservative spending.
Unaudited 2014 results show further growth in reserves, with a surplus of approximately $7.3 million. The surplus was again driven by a 4.3% increase in sales tax revenues and development fees finishing $2.9 million ahead of budget. Employees received 3% increases in salary, which they will again receive in 2015. The 2015 budget assumes a 3.7% increase in expenditures and some headcount growth, though the number of employees remains well below past highs.
The city retains revenue raising flexibility as it has not raised its millage since 2012 and tax rates are well below neighboring communities. Multi-year forecasts show essentially balanced operations going forward.
MODERATE LONG-TERM LIABILITIES
Aggregate debt levels are manageable at $3,047 per capita and 3.1% of market value. Debt levels are expected to remain moderate given the city's $127 million five-year 2016-2020 capital plan, of which a remaining $17 million will be debt financed, in addition to a projected $14 million issuance later in 2015. Principal amortization is rapid with 77% repaid within 10 years.
The city participates in the Kansas Public Employees' Retirement System (KPERS), a cost-sharing multi-employer plan, for which the city has made all requirement payments. KPERS was weakly funded at 60% as of Dec. 31, 2013, or an estimated 54% when adjusted by Fitch to reflect a 7% discount rate, suggesting a likely increase in future required payments.
The city also maintains two smaller single-employer defined benefit plans for police and fire, and a defined contribution plan. Reflecting a 7% discount rate, the police and fire plans are 85% and 65% funded, respectively. The city has pre-funded a portion of its OPEB liabilities. The plan was 19.5% funded as of Dec. 31, 2013. Carrying costs for debt service, pension and OPEB are moderate at 20% of governmental funds 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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Zillow and Financial Advisor.
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