NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'AA' to the following general obligation (GO) bonds to be issued by the city of Clarksville, Tennessee (the city):
--$9.65 million GO public improvement bonds, series 2014.
The bonds are expected to be sold competitively on April 23. Proceeds will be used to refund all of the outstanding series 2002 bonds ($2.8 million) and to fund road, public building, recreation and dock improvements.
In addition, Fitch affirms the 'AA' rating on $22.8 million of outstanding GO bonds, series 2002, series 2006, series 2011 and series 2012.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the city secured by
its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: Reserves have been
consistently maintained above the city's prudent 20% fund balance
policy. Conservative forecasting and timely monitoring have been key to
favorable budget results. Future revenue raising potential is evident in
the city's low property tax rate.
FORT CAMPBELL SIGNIFICANCE: As the largest employer in both Tennessee and Kentucky, Fort Campbell plays a vital role in the regional employment and economic picture. The economy adequately weathered effects of the 2013 sequestration.
MIXED DEBT PROFILE: Key debt ratios are moderate. Management reports no major capital needs; however, the absence of a formal multi-year capital plan adds uncertainty to the direction of the city's debt profile. Pension and other post-employment benefit (OPEB) liabilities are not a material credit concern, but variable rate exposure is high.
RATING SENSITIVITIES
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
Clarksville is located along Interstate 24
approximately 50 miles northwest of the state capitol city of Nashville.
Clarksville is the fifth largest city in Tennessee with an estimated
2013 population of 142,519.
RAPID GROWTH REFLECTS IMPORTANCE AS REGIONAL ECONOMIC CENTER AND FORT
CAMPBELL ACTIVITY
The city continues to experience very strong
population growth, triple the U.S. and TN annual rate for the 2010-2013
time period. The city serves as a regional center for education, and
health care has been a growth sector over the past year. Additionally,
the city has a sizable manufacturing presence and enjoys a sizable
economic impact from Fort Campbell. Clarksville's December 2013
unemployment rate of 7.5% is slightly above the national average, as the
employment base contracted 2.6% over the preceding year.
Fort Campbell is home to the prestigious 101st Airborne Division, the U.S. military's lone air assault division, and two Special Operations Command units. Fort Campbell supports a population of 23,000 soldiers and 40,000 family members. With 5,100 civilian employees, Fort Campbell is the largest employer in Tennessee or Kentucky.
The next largest employers within the city are the Clarksville-Montgomery County School System (3,900 employees), Trane Company, manufacturer of heating and air conditioning units (1,400), and Wal-Mart (1,363). The manufacturing sector remains sizable within the Clarksville, TN-KY metropolitan statistical area accounting for 11% of total non-farm employment (almost 130% of the U.S. average) but well below the pre-recession employment peak.
On the development front, the Hankook Tire project was the state's top project for new job creation, announced in late 2013. The manufacturing facility is expected to provide 1,800 jobs by 2016. Securing Hankook Tire is positive news after the announcement earlier in the year that production at Hemlock Semiconductor's newly built $1.2 billion plant was put on hold. The plant, one of the biggest construction projects in the state, is expected produce polycrystalline silicon, the compound used in solar energy panels. Oversupply in the industry and tariff constraints pose economic challenges for the firm and industry, resulting in the production hold.
CITY'S FINANCIAL POSITION REMAINS A CREDIT STRENGTH
The city
continues to adhere to a general fund reserve policy that requires a
minimum of 20% of operating expenditures and transfers out. At the close
of fiscal 2013 the unrestricted general fund balance totaled $25 million
or 31.9% of spending. The city's conservative reserve policy provides a
safety net to accommodate unforeseen expenses or revenue shortfalls.
The city closed fiscal 2013 with essentially balanced general fund operations after reporting a sizable $9 million (12% of spending) operating surplus in fiscal 2012. In fiscal 2012 revenues exceeded the budget by $2 million, largely driven by unanticipated growth in sales tax (reflecting troops returning home from deployment and improving economic conditions). Expenditures were $4.4 million less than original budgeted appropriations, reflecting a proactive spending reduction due to anticipated mid-year revenue cuts. These expenditure savings were accomplished by delaying replacement hiring as well as delaying some capital outlay items for purchase until fiscal 2013.
In fiscal 2013 the city originally budgeted the use of $5.9 million of reserves to balance operations; however, through conservative budgeting of both revenue and expenditures the city used a minimal $258 thousand of general fund balance. Sales tax fell 8.4% from the prior year, but the city's prudently forecasted receipts and collections outperformed budget. Sales tax revenues account for a moderate 17% of general fund resources and the city monitors collections monthly.
The fiscal 2014 general fund budget is balanced using $3.3 million in reserves. Both revenues and expenditures are tracking favorably to budget and the city anticipates utilizing less than $2 million of fund balance. Consistent with prior years' practice the budget appropriates approximately $3 million for capital outlay expenditures with paygo funding.
LOW TAX RATE AND STABLE TAX BASE
The city maintains ample revenue
raising capacity. At $1.24 per $100 assessed value (AV) the city's tax
rate was last increased in fiscal 2010 and is considerably lower than
the tax rate of other large Tennessee cities. The city's property tax
rate and levy amount are not subject to statutory or charter limitation.
The city's tax base has performed very well and the top taxpayers are adequately diverse, led by the Clarksville Health System (the Gateway Medical Center) at 6.3% of AV. The medical center is among the largest employers in the city and plays a critical role in the provision of essential health services for the broader region.
DEBT LEVELS MANAGABLE BUT SOME RISK TO UNDEFINED CAPITAL NEEDS
Debt
levels are generally moderate and heavily influenced by the overlapping
obligations of Montgomery County. Overall debt is equal to 4.2% of
market value and $2,374 per capita. Fiscal 2013 debt service is
affordable at $8.1 million or 8.8% of total governmental spending.
Borrowing needs appear limited. The city will be constructing a new fire station to service the area near Hankook Tire. The amount of capital the city needs to raise will be identified when other funding sources, namely state and IDB funds, are clarified. The city does not prepare a formal multi-year CIP defining future capital projects and possible funding sources.
HIGH VARIABLE RATE DEBT
Variable rate debt exposure remains high.
The city's GO pledge secures nearly $58 million in variable rate notes
issued through the Tennessee Municipal Bond Fund (TMBF). All of the
variable rate debt, which is amortizing, has either a liquidity facility
with Bank of America (senior unsecured rating of 'A' by Fitch) or is
directly purchased bank-held debt. Variable rate indebtedness accounts
for 53% of the city's $110 million in total direct debt - Fitch
generally considers variable rate exposure above 25% of outstanding debt
high. However, the notes have resulted in a very low cost of borrowing,
and the city's financial profile exhibits good flexibility to respond to
a spike in borrowing costs should one occur. The moderate overall debt
service burden also limits exposure to interest rate variations.
SATISFACTORY PENSION FUNDING; CLOSED OPEB PLAN LIMITS FUTURE LIABILITIES
City
employees participate in an agent multiple-employer defined benefit
pension plan administered by the Tennessee Consolidated Retirement
System. The city makes annual payments to the plan as determined by the
state that equal the annual required contribution (ARC) which was $7.1
million in fiscal 2013 or 7.7% of spending. The unfunded actuarial
accrued liability per the fiscal 2013 city audit is $30.3 million or .4%
of market value. The city's retiree healthcare, dental, and life
insurance plan has been closed to new employees as of July 1, 2006. The
city's OPEB liability is funded on a pay-as-you-go basis totaling under
$600,000 or less than 1% of spending in fiscal 2013. Total carrying
costs for debt service, pension and OPEB are a manageable 17% of general
government spending.
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.
Applicable Criteria and Related Research:
--'Tax-Supported Rating
Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported
Rating Criteria' (Aug. 14, 2012).
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=826750
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