NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following City of Beachwood, Ohio (the city) limited tax general obligation (LTGO) debt:
--$5.3 million LTGO bonds, series 2015.
In addition, Fitch affirms the following ratings:
--Approximately $240,000 LTGO bonds series 2000 at 'AAA';
--Implied unlimited tax general obligation (ULTGO) rating at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are supported by the city's full faith and credit and ad valorem tax subject to the 9.2-mill charter limitation.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: Prudent financial management and conservative budgeting practices have historically resulted in favorable operations and high reserve levels, allowing transfers for capital and one-time items.
DYNAMIC ECONOMY: The city's location within the broader Cleveland economy provides abundant employment and investment opportunities, particularly in the healthcare sector. Economic development has been strong, though concentration among top taxpayers has increased.
ELEVATED DEBT LEVELS: High overall debt metrics are driven by overlapping entities, with direct debt amortized rapidly. Carrying costs, including debt service and retiree benefit payments, remain affordable.
NO RATING DISTINCTION: Fitch makes no rating distinction between the implied ULTGO and LTGO ratings due to the financial flexibility offered by the city's high reserve levels and ample taxing margin.
RATING SENSITIVITIES
STABLE FINANCIAL PERFORMANCE: The rating is sensitive to shifts in fundamental credit characteristics, including balanced operations and strong reserve and liquidity levels. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The city is located approximately 13 miles from downtown Cleveland in Cuyahoga County (LTGO rated 'AA+'; Outlook Stable). Population has been declining at a compound annual rate of 0.2% between 2000 and 2013, standing at 11,837. The city's location in the broader Cleveland economy fosters its development as a regional retail and office center for the eastern Cleveland suburbs.
STABLE ECONOMY
The city's economic base is anchored by the Cleveland Clinic Foundation, parent institution of the Cleveland Clinic, which ranks among top taxpayers and is the city's single largest employer. Expansion at the Cleveland Clinic Foundation has largely offset the recent closure of the Bank of America facility located in the city, with prospects for future employment growth. The city continues to benefit from its status as a regional employment hub, with large-scale residential and mixed use properties currently in development.
Cuyahoga County's April 2015 unemployment rate of 5.5% was in line with the state average of 5.4% and the national average of 5.6%, improving modestly from 5.9% recorded a year prior. The reduction is attributable to growth in employment solidly outpacing growth in the labor force over the prior year. The city maintains a strong socioeconomic profile, with a per capita money income of $54,100, approximately double the state average. The city's poverty rate is very low and educational attainment remains very high, underscoring the educational demands of the local economy.
Income taxpayer concentration is high, as the top 10 employers constitute approximately 32% of the city's fiscal 2014 employment base. Recent private investment has made the taxpayer mix somewhat more cyclical than has historically been the case, including major healthcare, retail, and corporate interests.
HEALTHY FINANCIAL PERFORMANCE
The city has maintained balanced operations and ample fund balances despite significant transfers for capital. Fitch believes ample reserve levels are essential to the city's strong credit profile, given the reliance on economically sensitive income tax revenues which account for 73% of general fund revenues. Income tax revenues experienced steep recessionary declines, but a voter-approved increase in fiscal 2011 and more recent growth have supported balanced operations.
Fund balance declined by $6.2 million in fiscal 2014 (unaudited) due to a planned transfer of $11.8 million for capital spending. Unrestricted general fund balance decreased to $24.2 million, equal to a still-ample 52% of general fund spending.
The fiscal 2015 budget of $41.8 million holds spending essentially flat and conservatively includes a draw of $2.2 million from fund balance. Expenditures to date are tracking below budget and management currently expects to close the year without a draw on fund balance, despite a planned $3 million transfer to the city's capital improvement fund. Fitch considers the city's projection reasonable, given the city's budget performance history.
The city's policy is to maintain a total general fund balance equal to 50% of general fund revenues, and the city plans to sustain this level throughout its intermediate-term forecast. The city retains flexibility to decrease expenditures if necessary, including delaying discretionary capital improvements and reducing wage and benefits costs through attrition.
HIGH DEBT; AFFORDABLE CARRYING COSTS
Overall debt levels are high, at $5,996 per capita and 6.5% of market value, largely due to overlapping school debt. Amortization is very rapid with 100% of principal retired in 10 years and reported future borrowing needs are minimal.
The city contributes to the Ohio Public Employees Retirement System (OPERS) and the Ohio Police and Fire Pension Fund (OP&F) to fund both pension and other post-employment benefits (OPEB). Both plans are state-run, cost-sharing, multiple-employer defined benefit pension plans to which the city makes actuarially-based annual contributions. The larger, the Ohio Public Employees Retirement System, reported a funded ratio of 80.9% as of Dec. 31, 2013. Using Fitch's more conservative 7% rate of return, the estimated funded ratio is 73%.
The city's carrying costs, including debt service, pension ARC, and OPEB costs, equaled a low 13.4% of governmental fund spending 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.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987782
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987782
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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