Fitch Affirms Delta Township, MI's GOs at 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AAA' rating on the following Delta Township, MI (the township) bonds:

--$4.5 million outstanding general obligation limited tax (GOLT) bonds, series 2006;

--$6.6 million outstanding library GOLT bonds, series 2007;

--Implied unlimited tax GO (ULTGO) rating.

The Rating Outlook is Stable.

SECURITY

The GOLT bonds are secured by the town's full faith and credit limited taxing power, subject to applicable constitutional, statutory and charter tax rate limitations.

KEY RATING DRIVERS

STABLE FINANCIAL PERFORMANCE WITH STRONG RESERVES: Management has demonstrated a consistent record of strong financial stewardship supported by conservative fiscal policies. Fund balance levels have remained very strong despite the use of current resources for capital and other one-time items.

SOLID LOCAL ECONOMY: The township's economy is largely residential, anchored by the presence of automotive, energy, and insurance firms. The local tax base has begun to rebound with moderate growth following several years of recessionary declines.

MANAGEABLE DEBT BURDEN: The township's debt burden is affordable and additional near-term borrowing plans are limited. The township is prudently pre-funding its other post-employment benefits (OPEB) liability and pension obligations are affordable.

NO RATING DISTINCTION: The GOLT and implied ULTGO ratings are on par due to the significant financial flexibility represented by the township's substantial reserves.

RATING SENSITIVITIES

MAINTENANCE OF STRONG BALANCES: Significant deterioration in financial reserves would indicate fiscal pressure inconsistent with the current rating. Fitch views this as unlikely, given the township's stable resource base and history of strong financial management.

CREDIT PROFILE

Delta is advantageously located immediately west of the state capital city of Lansing on I-69 and I-96. The township's 2013 census population of approximately 33,000 grew 10.7% since 2000.

SOUND ECONOMY, IMPROVING TAX BASE

The township is largely residential, anchored by auto industry-related firms and a broader set of retail, energy, and insurance companies. Socioeconomic indicators are favorable with above-average wealth levels on a per capita and household basis. Unemployment levels have remained low at 3.7% in March 2015, well-below state (5.7%) and national (5.6%) averages.

Assessed valuation (AV) stabilized in 2013 after declining an aggregate 12% from its 2008 peak. Both residential and commercial values increased in 2014 and 2015, regaining approximately half of recessionary losses. Management projects further moderate growth in the near term, which Fitch considers reasonable given recent construction activity and underlying market growth.

AUTO INDUSTRY DEVELOPMENT PLAYS STRONG ROLE IN ECONOMY

The township continues to experience economic expansion in auto manufacturing and complementary industries. Tax base concentration remains moderate, with top taxpayers constituting 15.6% of 2014 AV and the predominance of auto-related firms.

General Motors Company (GM, 'BBB-'/Stable Outlook), which operates one of its newest plants within the township, anchors the local economy. Under an intergovernmental agreement with Lansing, Delta transferred the GM plant to Lansing's jurisdiction for 25 years (currently in the twelfth year of this arrangement) and in return receives one-half of the property taxes, calculated at Lansing's higher tax rate.

The GM plant located in the township is currently operating three shifts, which has contributed significantly to local employment. The complex currently employs approximately 3,900 people. Recent expansion at GM's Michigan facilities could further benefit the township, as management reports that approximately $500 million of new investment is expected at the Delta-Lansing facility in coming years.

Meijer, Inc. and Auto-Owners Insurance are the township's top taxpayers, constituting 4.6% and 4.5% of 2014 AV, respectively. Meijer, Inc., which operates grocery stores in several states throughout the region, has a multi-year expansion underway and the Auto-Owners Insurance facility is also in the process of more modest growth.

STRONG FINANCIAL PROFILE

Conservative financial management has maintained strong reserves despite the use of general fund resources for capital and other one-time expenditures. The 2014 unrestricted general fund balance was $14.1 million or a high 80.2% of spending, decreasing modestly from $15.1 million, or 98.9% in 2013. Expenditures increased by 15.7% in 2014 due to a major one-time contribution of $2 million to pre-fund the township's OPEB plan.

The 2015 budget totals $16.9 million in appropriations, decreasing 3.4% from 2014 spending. Management reports that revenues have performed slightly better than budget for the first six months of the year, while recurring expenditures have remained essentially flat. Management plans to make a discretionary contribution of $1 million to fund retiree benefits in fiscal 2015, resulting in a projected draw of approximately $400,000 from fund balance. Reserves for 2015 even with the draw are expected to remain high at $13.7 million, or 76.8% of projected 2015 spending. Fitch views the use of ample reserves to pay down long-term liabilities as prudent financial management.

DEBT AND LONG-TERM LIABILITIES

The overall debt burden is manageable at $2,724 per capita and 3.5% of market value, driven by overlapping entities. Principal amortization is rapid with 74% repaid in 10 years. The five-year capital improvement plan is modest and management has no plans to issue debt. However, if projects requiring debt financing became a priority, voter approval would be necessary.

The township participates in a defined contribution pension plan for all full-time employees and elected officials. The township's firefighters participate in the state's Municipal Employment Retirement System (MERS). As of June 1, 2015, the MERS plan was 86.7% funded using an 8% discount rate, compared with a Fitch-adjusted estimate of 78.1% using 7%. The annually required contribution (ARC) represents a modest 1.1% of governmental spending. Pension funding has improved notably in recent years as a result of labor concessions and discretionary funding increases.

The township's OPEB obligation is manageable and management has prudently taken steps to pre-fund this liability. The most recent valuation of the unfunded actuarial accrued liability was $6.6 million, equaling a modest 0.5% of market value. The OPEB funding level is expected to improve further following valuation of the additional contribution made in fiscal 2014 and to be made for fiscal 2015.

Fiscal 2014 carrying costs are affordable, with the pension ARC, OPEB contribution, and debt service representing 20% of total governmental fund expenditures, including the discretionary OPEB contribution.

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 and University Financial Associates.

Applicable Criteria

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988699

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988699

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
George M. Stimola
Analyst
+1-212-908-0770
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Karen Wagner
Director
+1-212-908-0230
or
Committee Chairperson
Doug Scott
Managing Director
+1-512-215-3725
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
George M. Stimola
Analyst
+1-212-908-0770
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Karen Wagner
Director
+1-212-908-0230
or
Committee Chairperson
Doug Scott
Managing Director
+1-512-215-3725
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com