Correction: Fitch Upgrades Johnson County Park and Recreation Dist (KS) COPs to 'AA+'; Affirms IDR

NEW YORK--()--(This is a correction of a release published Nov. 10, 2016. It amends the revenue framework under Key Rating Drivers as follows: Revenue Framework: 'aa' factor assessment.)

Fitch Ratings has upgraded the following rating of the Johnson County Parks and Recreation District, Kansas (the district):

-- $28.7 million certificates of participation (COPs) to 'AA+' from 'AA'.

Concurrently, Fitch affirms the Issuer Default rating at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The COPs are secured by lease payments made by the district equal to principal and interest. Lease payments are payable from any legally available funds of the district, subject to annual appropriation. Properties subject to leasehold interest include various developed and undeveloped parks.

KEY RATING DRIVERS

The upgrade of the COPs rating results from application of Fitch's revised criteria for U.S. state and local governments, which was released on April 18, 2016. Pursuant to the revised criteria, appropriation-backed obligations generally are rated one notch below an obligor's IDR, reflecting the slightly higher degree of optionality associated with lease/appropriation payments. The 'AAA' IDR reflects the district's strong revenue and expenditure frameworks, low long-term liabilities, and expected ample financial flexibility through a typical economic cycle.

Economic Resource Base

The district is coterminous with Johnson County ('AAA' GO rating with a Stable Outlook by Fitch) and located directly southwest of Kansas City. The district is a bankruptcy remote component unit of Johnson County and is governed by a seven-member board of commissioners who are appointed by the Board of County Commissioners. The district's 2015 population of 580,159 represents a cumulative 7% increase since 2010.

Revenue Framework: 'aa' factor assessment

While the district's recent revenue history has been less than robust, Fitch expects future revenue growth to improve, driven by anticipated AV gains. The district retains significant independent legal ability to raise revenue.

Expenditure Framework: 'aa' factor assessment

Expenditure growth should generally track the pace of revenue gains. The cost of servicing long-term liabilities is relatively high but not unusual for a single-purpose entity.

Long-Term Liability Burden: 'aaa' factor assessment

The district's long-term liability burden, including pension liabilities and overall debt, are low relative to personal income.

Operating Performance: 'aaa' factor assessment

The district has exceptionally strong gap closing capacity to manage through an economic downturn and maintains healthy reserve levels.

RATING SENSITIVITIES

Maintenance of Financial Resiliency: Fitch anticipates the district will maintain budgetary flexibility and sound reserve levels through a typical economic cycle; any deterioration in the profile could pressure the rating.

CREDIT PROFILE

The county's diverse local economy is characterized by high wealth and low unemployment. The county's economy further benefits from extensive employment opportunities throughout the Kansas City metropolitan statistical area (MSA). An improving housing market and strong ongoing development contributed to solid AV growth in recent years.

Revenue Framework

The district is reliant on property tax receipts, which comprised 95% of fiscal year (FY) 2015 general fund revenue. Licenses and permits and charges for services made of most of the remainder.

Fitch believes the district's general fund revenue may grow at a faster rate than historical trends (0.9% 10-year compound annual growth rate) and in line with the rate of GDP growth. The district budgeted for 7% growth in revenue in FY 2017 and is projecting growth of 5% annually in the next five years, equal to the district's assessed value growth projections.

The district can raise its tax rate with a simple majority approval from the Board of County Commissioners of Johnson County, the governing body that appoints the Board of Park and Recreation Commissioners and will not be subject to the limitations on property tax growth under the Tax Lid.

Expenditure Framework

The district's main expenditure item is for culture and recreation programming--at 61% of fiscal 2015 general fund expenditures. Approximately 29% is for debt service and an additional 10% is for capital outlay.

The natural pace of spending growth should be in line with to marginally above the expected pace of revenue growth. The main driver of expenditure growth is for labor costs, with salaries and employee benefits expected to grow at approximately 3% annually.

The district has solid flexibility with its main expenditure items. Carrying costs (debt service and retiree benefit contributions) make up 27% of total governmental expenditures (FY 2015), although this is expected to decline after debt service payments decline significantly after FY 2019. The district also has budget flexibility to cut or delay spending on pay-as-you-go capital ($1.4 million or 10% of FY 2015 general fund spending) and maintains a notable degree of control over labor-related outlays.

Long-Term Liability Burden

The district's long-term liabilities are low, with the combined net pension liability and overall debt at approximately 6% of personal income. Of the long-term liability burden, less than 2% is direct debt of the district and less than 1% is the net pension liability. Approximately 98% is derived from overlapping debt, largely from Johnson County and various cities and school districts within the county.

The long-term liability metric includes the district's participation in the multi-employer Kansas Public Employees Retirement System (KPERS) and the Kansas Police and Firemen's Retirement System (KP&F). The plans statutorily require the district to contribute an amount that is lower than the actuarially determined rate; this practice has contributed to a sizable gap between plan assets and liabilities which will increase in the future with no change in contribution practices. Fitch estimates the combined ratio of the fiduciary net position-to-total pension liability to be 59%, assuming a 7% discount rate.

Operating Performance

The district has maintained a substantial available fund balance throughout the recession and subsequent recovery relative to potential revenue declines depicted by the Fitch Analytical Sensitivity Tool (FAST) in a moderate economic downturn. Fitch expects that available reserves (40% of expenditures in FY 2015) will remain above the 'aaa' reserve safety margin, even in a moderate unaddressed recessionary period, given the district's high degree of inherent budget flexibility.

The district has made consistent efforts to maintain a high level of financial flexibility in the recent economic recovery, despite strategically spending down some of its sizable available fund balance in FY 2015 on transfers out to the capital projects fund. Management projects a surplus of $300,000 to $500,000 in FY 2016 and to maintain reserve levels well above the district's internal 25% target.

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=1015572

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015572

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty. Ltd. holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

Contacts

Fitch Ratings
Primary Analyst:
Matthew Wong, +1-212-908-0548
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Shannon McCue, +1-212-908-0593
Director
or
Committee Chairperson:
Steve Murray, +1-512-215-3729
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Matthew Wong, +1-212-908-0548
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Shannon McCue, +1-212-908-0593
Director
or
Committee Chairperson:
Steve Murray, +1-512-215-3729
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com