NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA+' rating to the following general obligation bonds (GO) bond of the city of Richmond, Virginia (the city):
--$110 million GO public improvement bonds, series 2014A;
--$26.35 million GO public improvement refunding bonds, series 2014B.
The bonds are scheduled for competitive sale on Dec. 4. Series A bond proceeds will be used to currently refund a portion of the $150 million principal amount of the city's outstanding bank line of credit. Series B bond proceeds will be used to refund various series of GO bonds for debt service savings.
In addition, Fitch affirms the following ratings:
--$693.8 million in outstanding city GO bonds at 'AA+'.
The Rating Outlook is Stable.
The GO bonds are payable from the city's full faith and credit and unlimited tax pledge.
KEY RATING DRIVERS
HEALTHY FINANCIAL PROFILE: City management adheres to prudent financial policies yielding adequate liquidity and healthy reserve levels.
FAVORABLE DEBT PROFILE: The city's debt burden is expected to remain moderate given affordable future planned debt financings.
ANCHORED ECONOMY: The city of Richmond's economy benefits from a strong government and educational presence supported by a well-educated labor force. Consistent employment growth has resulted in an improved unemployment rate.
BELOW-AVERAGE SOCIOECONOMIC INDICATORS: Median household income is well below the state and national average and unemployment continues to exceed state and national rates.
WEAK PENSION POSITION: While the city continues to fully fund the annual required pension contribution, the plan's funded ratio remains weak.
The rating is sensitive to shifts in fundamental credit characteristics including the city's healthy reserve position and progress in reducing the pension liability.
The City of Richmond, VA, which is the state capital, is situated on the Interstate 95 corridor at the midpoint of the eastern seaboard, 107 miles south of Washington, D.C., and 93 miles north of Norfolk. The estimated 2013 population was 214,114.
FISCAL 2013 RESULTS REFLECT PLANNED ONE-TIME SPENDING
Fiscal 2013 results show an approximate $35 million use of reserves (approximately 5% of general fund spending), reducing the unrestricted fund balance to a still healthy $126 million or 18.5% of spending. As expected, the city utilized about $26.5 million of one-time revenues received in fiscal 2012 from the Richmond Metropolitan Authority (RMA) to retire various series of outstanding debt, establish a public school endowment fund, and fund economic development initiatives. The city did use approximately $7.3 million of assigned revenue stabilization fund balance to settle a lawsuit. The city remains in compliance with its recently strengthened 10% fund balance policy and $10 million revenue stabilization fund policy.
POSITIVE OPERATING RESULTS EXPECTED FOR FISCAL 2014
The fiscal 2014 budget was adopted with approximately an $8 million fund balance appropriation and no revenue enhancements. Estimated fiscal year-end results reflect surplus operations of approximately $13 million (1.7% of budgeted spending) due to enhanced tax collection procedures and operational expense reductions.
Property tax revenues are the city's largest revenue source at 43% of total general fund revenues, followed by state aid at 15%. Total tax collections are slow at 97% but are expected to improve due to increased collection efforts. The property tax rate, which is low compared to similarly sized neighboring communities, has not been increased in over a decade, affording additional financial flexibility.
FISCAL 2015 BUDGET BALANCED WITH USE OF RESERVES
The fiscal 2015 budget is a 5.8% increase over the approved fiscal 2014 budget. The budget includes no revenue enhancements and a $23.9 million appropriation of unrestricted fund balance. The appropriation funds approximately $17.5 million of one-time uses but $6.5 million (less than 1% of budgeted 2015 general fund spending) of ongoing uses. The budget increase mostly reflects a 2% bonus for city employees, $1.9 million in additional healthcare costs, $4.8 million in additional funding to the schools and funding of technology infrastructure. Fitch expects the city will continue to budget conservatively and maintain reserves at or above policy targets.
STABLE AND DIVERSE ECONOMIC BASE
Richmond serves as the core of a growing metropolitan area and is a regional center for employment and cultural amenities. The economy, which has traditionally been dominated by the government sector, has gained strength from education and health services, anchored by Virginia Commonwealth University (VCU), and eight other higher education institutions located in the city.
Economic development efforts are focused upon leveraging additional growth in the life-sciences sector, enhancing a solid financial services sector, and redeveloping select city neighborhoods. The city's employment base has increased annually between 2011 and 2014 with growth notably outpacing the state and national rates. As such, the unemployment rate, at 6.4% as of September 2014, continues to improve but remains above the state and national averages.
The city's historical trend of population decline appears to have reversed, with population increasing 8% since 2000. The city's poverty rate of 26.7% is nearly double that of the nation. Wealth indicators are weak with median household income at just 62% and 74% of the state and national average respectively.
MODERATE DEBT LEVELS
The city's overall debt burden is expected to remain moderate despite future planned debt financings. Overall debt equals $3,591 per capita and 3.44% of market value, and amortization is a rapid 72% within 10 years. The city remains in compliance with its debt burden policy of 4.5% and expenditure policy of 10%.
The city's capital improvement plan (CIP) for fiscal years 2015-2019 totals $258.9 million. The plan is 72% debt funded. A portion of the debt will initially be funded through a bank line of credit program with planned long-term financing approximately every 15-18 months. The plan includes $31 million from the commonwealth for the city's new justice center, about $62 million in pay-go spending and $11 million from other sources.
PENSION FUNDED LEVELS WEAK BUT IMPROVING
The funded ratio of the city's pension plan, which is closed to non-public safety employees, has historically been weak. The most recent actuarial valuation report shows that the funded ratio has improved to an adjusted (using Fitch's adjusted return on investment of 7%) 55.7%. The city contributes 100% of the annual required contribution (ARC), which totaled $40.4 million or a low 4.5% of total governmental spending. The adjusted unfunded actuarial accrued liability (UAAL) is approximately $400 million, or 1.8% of assessed value.
Other post-employment benefit (OPEB) costs consume a modest share of total governmental spending (less than 1%). During fiscal 2013, the city funded 109% of the ARC. The UAAL of $57.8 million represents about 0.25% of assessed value.
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, RealEstate Business Intelligence, Greater Richmond Partnership, Inc., Virginia Economic Development Partnership, Trulia, Inc.
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
U.S. Local Government Tax-Supported Rating Criteria