NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned ratings to the following Olathe, Kansas (the city) obligations:
--$13 million general obligation (GO) improvement bonds, series 226 at 'AA+';
--$8.9 million GO refunding bonds, series 227 at 'AA+';
--$16.2 million GO temporary notes, series 2015-A at 'F1+'.
Proceeds of the notes and improvement bonds will finance various capital projects. Refunding bond proceeds will advance refund the 2017-2027 maturities of the series 209 bonds and current refund the 2016-2017 maturities of the series 210 bonds. The bonds are expected to sell via competition on May 19.
Fitch has also affirmed the 'AA+' rating on approximately $195.8 million of the city's outstanding GO bonds and the 'F1+' on the GO temporary notes, series 2014-B.
The Rating Outlook is Stable.
SECURITY
The notes are payable from special assessments on benefited properties or from the proceeds of takeout bonds, and also carry the city's unlimited tax general obligation (ULTGO) pledge. The bonds carry the city's ULTGO pledge.
KEY RATING DRIVERS
GROWING, VIBRANT ECONOMY: Olathe benefits from its proximity to the Kansas City metropolitan statistical area (MSA) in addition to its own vibrant and expanding commercial/industrial sector anchored by several national companies. Socioeconomic indices are favorable and unemployment is low.
CONSERVATIVE, SOLID FINANCIAL PROFILE: The city conservatively manages its financial operations, allowing for the maintenance of solid liquidity and reserve levels, despite significant reliance upon economically-sensitive revenues for operations.
MIXED DEBT PROFILE: Overall debt, including that of overlapping entities, is above average, due to substantial capital investment to support both population and economic growth. Carrying costs are high, in large part due to rapid amortization. Post-employment benefit obligations are manageable.
EXPECTED STRONG MARKET ACCESS: The 'F1+' rating reflects Fitch's expectation that the city will be able to easily access the market to provide ultimate funding for the notes, given its high quality long-term credit characteristics.
RATING SENSITIVITIES
SOLID FINANCIAL PROFILE: 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 unlikely.
CREDIT PROFILE
Olathe is a suburban community within the Kansas City MSA, located approximately 20 miles southwest of Kansas City, Kansas. It is the county seat of Johnson County. Approximately 70% of the tax base is residential, with the balance commercial/industrial. The city's population has experienced strong growth, doubling in size since 1990, and presently stands at about 132,000.
GROWING, VIBRANT ECONOMY
Olathe residents enjoy access to employment opportunities within the larger Kansas City MSA but also benefit from growing employment within the city's own vibrant commercial/industrial sector. Large employers include Garmin and Farmers Insurance, who employ 3,178 and 3,000 respectively, within the city. Prospects for future growth appear strong, supported by a new nearby intermodal transportation center for freight and Google's plan to implement its new high speed internet service, Google Fiber, in the city.
Employment trends are positive. The city's unemployment rate remained below the state and nation throughout the recent recession, peaking at 7% in 2009. The February 2015 rate of 3.6% compared favorably to the state rate of 4.4% and that of the U.S. at 5.8%. The February 2015 unemployment rate represented a drop from the 4.6% recorded a year prior, attributable to robust employment growth outpacing strong gains in the labor force.
Resident socioeconomic indices are above average. Per capita income is approximately 117% of the state and 112% of the U.S., and the poverty rate is a low 7.2%, versus 13.7% for the state. Residents exhibit above average educational attainment levels with 45% completing a bachelor's degree, compared with 29% nationally. Officials report Olathe's well-educated population is a major factor cited by companies wishing to relocate to the city.
Market value per capita is moderately low at $77,000, reflecting affordability of the housing stock, although higher end housing is planned. Assessed value (AV) dropped during the recession, before returning to 2.6% and 5.8% growth in 2013 and 2014, respectively. The city's five-year forecast anticipates AV growth of 4% annually, which Fitch believes is reasonable given development in progress, strong permit activity and expiring tax abatements.
CONSERVATIVE, SOLID FINANCIAL PROFILE
2013 audited results show the city added a modestly to the general fund balance, despite a one-time capital outlay for a new community center. Year-end unrestricted general fund balance was 30.7% of spending for 2013, at the upper end of the city's policy range. Preliminary, unaudited results show another modest $1.2 million net operating surplus (1.4% of spending) for 2014. The unrestricted general fund balance remained solid at 30.2% of spending. The 2015 budget is balanced and includes 7% growth in property taxes, consistent with the strong AV growth, and 3.6% growth in sales taxes, which appears reasonable given that year-to-date 2015 sales tax receipts are up 4%.
MIXED DEBT PROFILE
Debt burden is above average at 5.8% of market value, or $4,453 per capita. This is largely reflective of the infrastructure investments necessitated by the rapidly growing population. The city's own debt, which represents less than half of overall debt, is expected to decline as a result of moderating growth pressures, rapid principal amortization that is projected to exceed future issuance, and the funding of some major road projects on a pay-go basis with the proceeds of a 10-year, voter-approved 3/8th cent sales tax.
Debt structure is conservative in accordance with formal policies; amortization is very rapid at 81.3% in 10 years. The city's five-year capital improvement plan spending averages $50 million per year, with approximately 30% of this to be bond-financed. The city anticipates issuing $26 million in water/sewer revenue bonds later this year.
The city participates in the weakly funded Kansas Public Employees Retirement System (KPERS) and Kansas Police and Firemen's Retirement System (KP&F); 57% and 70% funded, respectively. The city makes its full required contribution annually to the funds. The weak funded status raises the potential for rising future contributions. The effect of recently passed state pension reform legislation on the city's future payment requirements is not yet known. Other post-employment benefits (OPEB) are funded on a pay-go basis and the accrued liability associated with OPEB is very small at $21 million, well below 1% of market value; however, carrying costs for pension, OPEB and debt service are high at 25.2% of governmental spending. The high ratio is largely attributable to debt service costs, at 20.9%, which Fitch expects will moderate in future years.
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, Financial Advisor, Bond Counsel
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
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=984221
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