NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings on the city of Coopersville, MI:
--$1.1 million limited tax general obligation (LTGO) bonds, series 2006 at 'AA-';
--Issuer Default Rating (IDR) at 'AA-'.
The Rating Outlook is Stable. Fitch has simultaneously withdrawn the ratings as they are no longer considered to be relevant to the agency's coverage.
SECURITY
The LTGO bonds are backed by the city's full faith and credit and a limited ad valorem tax subject to applicable constitutional, statutory and charter limitations.
KEY RATING DRIVERS
The 'AA-' rating reflects that the city has substantial control over revenues and spending and Fitch's expectations of slow growth. The city has a moderate long-term liability burden. Fitch believes that the city's ample reserves would remain very strong in a moderate economic downturn scenario.
Economic Resource Base
With a population of about 4,300, the city of Coopersville is located in Ottawa County (rated 'AAA' by Fitch) approximately 15 miles outside of Grand Rapids.
Revenue Framework: 'a' factor assessment
Fitch expects the city's revenue to grow at a rate in line with inflation. The city has substantial independent legal ability to raise revenue.
Expenditure Framework: 'aa' factor assessment
Fitch believes that the city's expenditures should grow at a rate slightly above revenue growth, requiring ongoing budget management. Flexibility is supported by moderate carrying costs for debt and other long-term liabilities.
Long-Term Liability Burden: 'aa' factor assessment
The city's long-term liability burden, including pension liabilities and overall debt, is low relative to personal income.
Operating Performance: 'aaa' factor assessment
The city has exceptionally strong gap closing capacity to manage through an economic downturn.
RATING SENSITIVITIES
Revenue Expectations: The 'AA-' ratings are sensitive to any material change in Fitch's expectation for revenue growth, which is currently in line with inflation.
CREDIT PROFILE
Residents benefit from employment opportunities both within the city and throughout the Grand Rapids metropolitan area. City unemployment rates have improved significantly to below state and national levels, as the city is benefitting from several new large local development projects. The city expects assessed values to grow 10% in FY 2016 from the construction of a new milk-drying plant by Continental Dairy Facilities, LLC.
Revenue Framework
The city is largely reliant on property tax receipts, which comprised 65% of fiscal year (FY) 2015 general fund revenue. State shared revenue accounted for 17%. Charges for services (9%) and other revenue sources made up the remainder.
Prospects for natural revenue growth are slow. Fitch believes that future revenue growth is likely to be in line with CPI, but below GDP growth, particularly as increases are limited to CPI under the Headlee Amendment (with exceptions for new construction). Growth is expected to be above the compound annual growth rate of the last 10 years, which was negatively affected when the city's largest taxpayer filed bankruptcy in 2007. Since then, the city has added two large taxpayers: the aforementioned milk-drying facility and Fairlife LLC, a partnership between Select Milk Producers LLC and The Coca-Cola Company. The city projects FY 2016 revenue to increase by 10%, the majority of which is not subject to the Headlee Amendment limitation as it is exempt as new construction, before reverting to inflationary growth in subsequent years.
The city has substantial ability to legally raise revenue independently. While the city is constrained by state-imposed property tax limitations under the Headlee Amendment, it maintains the ability to increase the property tax rate by 3.6 mills to approximately $515,000, or 18% of total general fund revenue.
Expenditure Framework
The city's expenditures are largely driven by public safety (approximately 40% of FY 2015 general fund expenditures) and general governmental administration (around 25%). The remainder is comprised of public works, culture and recreational spending, and other expenditures.
Fitch expects that natural spending growth will be slightly above the slow natural revenue growth. The city no longer has any unions, which has reduced the contractual obligations that drive labor force increases in other jurisdictions. Fitch believes that the city will still be pressured to increase salaries at a rate approximating inflation to retain employees.
The city maintains ample flexibility of its main expenditure items. The city's carrying costs are approximately 8% of governmental expenditures and management maintains strong control over managing headcount.
Long-Term Liability Burden
The city's long-term liability burden is low, with debt and pension liabilities at approximately 15% of personal income. The majority of the city's liability burden is comprised of overlapping debt of the school district and several other entities (approximately 89% of the city's FY 2016 liability burden). The city does not have debt plans in the near future.
The city participates in the Municipal Employees' Retirement System of Michigan (MERS), which is an agent multiple-employer defined benefit pension system. Fitch calculates the ratio of assets to liabilities to be 63% assuming a 7% discount rate.
Operating Performance
The city has maintained a substantial available fund balance throughout the great 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 general fund reserves (58% of expenditures in FY 2016) will remain above the 'aaa' reserve safety margin, even in a moderate unaddressed recessionary period, given the county's high degree of inherent budget flexibility. Fitch also notes that the high revenue volatility depicted by FAST may be overstated as it incorporates revenue declines caused by the bankruptcy of the city's top taxpayer in 2007.
The city has made consistent efforts to maintain a high level of financial flexibility in the current period of economic growth, exhibiting prudent fiscal management given the taxpayer concentration that introduces some risk to revenue declines. Management had a general fund surplus of $128,889 in FY 2016 and expects balanced operations in FY 2017. The city does not have a formal fund balance policy, but has an informal target of between 45% and 50%.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's 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=1016062
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016062
Endorsement Policy
https://www.fitchratings.com/regulatory
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