NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'AAA' rating to the following general obligation (GO) bonds of the Town of Morrisville, North Carolina:
--$10 million general obligation street improvement bonds, series 2016A;
--$4.3 million general obligation refunding bonds, series 2016B.
In addition, Fitch has assigned a 'AAA' rating on the following:
--$5.8 million general obligation bonds, series 2007;
--$4 million general obligation bonds, series 2013
--Town of Morrisville Long-Term Issuer Default Rating (IDR).
The Rating Outlook is Stable.
SECURITY
The bonds are payable by a pledge of the faith and credit and taxing power of the town.
KEY RATING DRIVERS
The 'AAA' IDR and GO ratings reflect the town's strong growth prospects, low long-term liability burden, ample reserves and broad budgetary tools.
Economic Resource Base
Morrisville is located in the middle of the Raleigh-Cary metro area, with great access to employment centers like Research Triangle Park and major transportation hubs like Interstate 40 and Raleigh-Durham International Airport. Population growth has been strong increasing by a compound annual growth rate of 6.9% since 2004; the 2015 population was 23,699.
Revenue Framework: 'aaa' factor assessment
Revenues have been rising at a pace above both the rates of inflation and U.S. GDP growth and Fitch expects this trend to continue. The town has strong revenue raising flexibility as its current property tax rate is well within the statutory cap.
Expenditure Framework: 'aaa' factor assessment
Fitch expects the natural pace of spending growth to remain below to in line with the town's strong revenue growth. Moderately low carrying costs and broad flexibility to manage labor-related costs allow the town solid leeway to adjust spending throughout economic cycles.
Long-Term Liability Burden: 'aaa' factor assessment
The combined burden of debt and unfunded pension liabilities is low in relation to personal income and should remain relatively stable over time based on future capital and issuance plans, rapid amortization and modest pension liabilities.
Operating Performance: 'aaa' factor assessment
The town's historical operating performance has been very sound with a high level of fundamental financial flexibility maintained during and after the recession. Given the town's revenue and expenditure flexibility and strong reserves Fitch believes the town is poised to perform exceptionally well in and manage the risks associated with future economic downturns.
RATING SENSITIVITIES
Key Rating Factor Stability: The rating assumes the town's continued strong financial flexibility, revenue growth prospects and low long-term liabilities.
CREDIT PROFILE
Morrisville is located in Wake County (rated 'AAA') and is part of the Research Triangle Park (RTP) metropolitan region. RTP is a prominent research and development center that is home to 200 companies and a workforce of 50,000 employed in such fields as biotechnology and pharmaceuticals. Despite having a geographical area of less than 10 square miles the town is home to several corporations including Lenovo, the town's largest employer with a workforce of 2,100, Time Warner Cable (1,800 employees) and NetApp (1,600 employees). While employment data is not available for the town, the town's workforce is well educated with 65% having a bachelor's degree or higher and the county consistently records an unemployment rate well below the North Carolina and U.S. benchmarks.
Revenue Framework
The town's revenue base is dominated by property and sales taxes at about 54% and 15%, respectively, of fiscal 2015 general fund revenues. Total general fund revenues have continued to increase reflecting steady assessed value and sales tax growth.
The town's general fund revenue growth has trended well above inflation and U.S. GDP growth increasing at a 10-year CAGR of 7.2% through fiscal 2014. Revenue growth reflects solid gains in the town's assessable base due to new construction and appreciation. Revaluation occurred in 2016 with a 10.8% increase in valuation. Wake County has changed to a four-year cycle, with the next revaluation beginning in 2020. Sales tax revenue growth has remained strong over the past decade increasing approximately 5.5% annually. Given ongoing retail investment and population growth sales tax revenues are expected to remain strong.
The town maintains a healthy capacity under the statutory property tax cap of $1.50 per $100 of assessed value with a fiscal 2017 tax rate of $0.39. The town's revenue raising capacity is exceptional relative to scenario-estimated changes in revenue.
Expenditure Framework
Fitch expects the natural pace of spending growth to remain below or in line with revenue growth. Moderately low carrying costs and broad flexibility to manage labor-related costs allow the county solid leeway to adjust spending.
The town's largest spending area is public safety, which makes up about 35% of general fund spending, followed by public works and general government spending. Road and transportation capital needs financed from general fund sources are expected to increase due to consistent population growth but should be matched by the combination of continued strong local revenue growth and state grant support.
The town's expenditure flexibility is aided by a workforce environment that is favorable to management. Employment terms are not subject to collective bargaining. As such, management has independent control of compensation and work rules. The town makes annual contributions for capital projects which in fiscal 2015 totaled approximately $1.5 million or a notable 6% of general fund spending, adding additional budgetary flexibility.
Carrying costs associated with debt service, actuarially determined pension payments and OPEB actual contributions total a manageable 14% of governmental spending. Carrying costs includes contribution to the state's Local Governmental Employees' Retirement System (LGERS) as well as contributions to several supplemental plans. In addition to the town's annual contribution to LGERS the town also makes an annual payment to LGERS for the cost of initially joining the system. The last payment for this accrued liability will be June 30, 2018 at which time carrying costs will see a notable decrease.
For nearly a decade the town has conservatively over funded the OPEB actuarially required contribution, which has resulted in an OPEB funded ratio of 110% as of Dec. 31, 2013. The town does have a retirement health care trust fund which as of year-end 2015 had a balance of $2 million. The town plans to continue to maintain full funding of the OPEB required contribution. Fitch views the town's full funding of OPEB and pay-go contributions for various capital improvements as items that can be deferred or scaled back in a given year, if necessary.
Long-Term Liability Burden
Overall debt and unfunded pension liabilities are approximately 8.1% of the town's personal income which is near the upper-limit of the 'aaa' subfactor assessment. The metric mostly reflects overlapping debt of Wake County which Fitch expects will remain fairly stable over time. Fitch also expects the town's direct overall debt and its proportionate share of the LGERS net pension liability to remain largely unchanged. The town has modest additional borrowing plans, and its outstanding debt is amortized at an above average pace of 61% in 10 years.
Town employees participate in the Local Government Employees Retirement System (LGERS) administrated by the state. The system is funded at 99.9% based on a Fitch-adjusted 7% return assumption. The town also participates in the Law Enforcement Officers' Special Separation Allowance plan. The town has only been funding the plan on a pay-go basis. The funded ratio is just 40% but the unfunded liability is minimal at less than 1% of personal income. The town has fully funded its OPEB liability of $1.5 million was 110% funded as of the last valuation in 2013.
Operating Performance
Given the town's superior inherent budget flexibility in the form of control over revenues and spending capacity, Fitch expects the town to manage through economic downturns while maintaining a high level of fundamental financial flexibility. Reserves are expected to remain above the town's 25% policy - a level of financial cushion consistent with the 'aaa' subfactor assessment. The unrestricted general fund balance of $16 million in fiscal 2015 was a high 64% of spending. The town's reserve required by state statute, which is primarily to offset accounts receivable, is an additional source of financial flexibility and increases the total available fund balance to $19.7 million or 78.4%.
The town is projecting to add to reserves at the close of fiscal 2016 as a result of positive revenue trends and conservative expenditures. The town had budgeted a $684,800 draw on reserves; the favorable budgetary variance is mostly due to better than anticipated property tax revenues and lower debt servicing costs relative to budget. The fiscal 2017 budget includes a tax rate decrease to $0.39, reflecting an estimated 10.8% increase in the taxable assessed value following the 2016 revaluation. The budget does includes a larger $2.3 million fund balance appropriation (7.3% of fiscal 2017 budget spending) to fund capital projects. .
In addition to general fund reserves the town maintains several capital projects funds. The funds are funded with developer fees as well as transfers from the general fund. These additional reserves provide resources to fund capital spending which in turn reduces the need to issue debt and keep debt servicing costs low. As of fiscal year-end 2015 the balance was $5 million.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
Applicable Criteria
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
https://www.fitchratings.com/site/re/879478
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011149
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011149
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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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