AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on the following Peoria AZ and Peoria, AZ improvement district's bonds.
--$162.4 million in outstanding Peoria GO bonds at 'AA+';
--$3.5 million in District No. 0601 (Park West), Peoria improvement bonds, series 2007 at 'AA'.
The Rating Outlook is Stable.
SECURITY
The GO bonds are payable from an unlimited ad valorem tax levied against all taxable property in the city. The improvement bonds issued by the district (approximately 74 acres in the western portion of the city) are secured by assessments levied against benefiting properties within the boundaries of the district. In addition, under state law, the city is required to make up any assessment delinquencies prior to scheduled debt service payments from the city's general fund; all property owners in the district are current with assessment payments, according to the city.
KEY RATING DRIVERS
SOUND FINANCIAL PROFILE: The city's strong financial practices represent a credit strength; although robust general fund balances are reduced from prerecession highs due to modest use of reserves for capital and one-time expenditures.
STRENGTHENING ECONOMY/ONGOING VULNERABILITY: Improving local sales tax receipt and residential permit activity trends signal a return to growth of the local economy. However, the city's primary revenue sources, sales tax and state shared revenues remain susceptible to ongoing economic cyclicality.
MODERATE DEBT: The city's overall debt is moderate, with no firm debt plans in the immediate future; payout is rapid. The 10-year capital plan represents less than half of its earlier levels, as management has pared back spending in light of reduced needs and recent tax base declines.
IMPROVEMENT BOND RATING BASED ON CITY'S CONTINGENT LIABILITY:
The bonds are an affordable contingent liability of the city's general fund in the unlikely event of default by property owners. The city has pledged revenues for repayment of these special assessment bonds at a level which Fitch considers healthy, especially based on the recent maturity of parity improvement district bonds.
ABOVE-AVERAGE ECONOMIC METRICS: The city's populace is characterized by above average income and wealth and below average unemployment rates. Peoria benefits as part of the Phoenix metropolitan area with an extensive regional transportation network and broad employment base.
RATING SENSITIVITIES
STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices.
CREDIT PROFILE
Peoria is situated northwest of Phoenix with a population of about 156,800, representing a 45% gain since the year 2000. The city-owned Peoria Sports Complex hosts the Seattle Mariners and San Diego Padres major league baseball spring training and minor league activities. These facilities anchor the city's growing entertainment district.
Improvement district No. 0601 is located one mile northwest of the University of Phoenix stadium covering about 74.2 assessable acres, including a 56-acre mixed use project, with 360,000 square feet (SF) of retail space, 250 multi-family residential units, 70,000 SF of office space and a 2.5 acre site for a possible hotel. To date 150,000 SF of the retail area has been constructed and includes several retailers and restaurants. In addition, the apartment complex is complete and tenant occupied.
FINANCIAL FLEXIBILITY
Peoria entered the recession with sizable reserves exceeding 70% of annual spending levels. Officials prudently responded to deteriorating economic conditions with numerous spending adjustments beginning in fiscal 2009, including eliminated positions, salary and vacant position freezes, a retirement incentive program, and operational consolidations. Management's quick response to revenue weakness enabled the city to avoid significant service curtailments, while maintaining a strong financial position.
Peoria completed fiscal 2012 favorable to budget. In keeping with its paygo strategy, the city funded $2.3 million of capital with general fund monies, resulting in a net deficit of $769,000 (.8% of spending). Fiscal 2012 unrestricted general funds of $50.2 million represent a still healthy 52.1% of spending and transfers out. The city reports that an estimated $3 million favorable-to-budget surplus in fiscal 2013 will be programmed into the fiscal 2014 balanced budget to fund prioritized capital and one-time expenditures.
ECONOMICALLY SENSITIVE REVENUES TREND UPWARD
Local sales tax and state shared revenues account for nearly three-quarters of the city's operating revenues, with property taxes contributing less than five percent. Following a three-year decline of $8.2 million (21%) from a recent fiscal 2007 peak, sales tax receipts regained $2.5 million (8.4%) through fiscal 2012. Management reports strong retail sales in fiscal 2013, particularly of automobiles which represent 34% of the city's sales tax activities. The city expects a $750,000 (2.2%) gain in fiscal 2013 receipts based on strong construction activity and an additional 3% growth in fiscal 2014, consistent with consumer spending and population trends.
General fund state shared revenues of $30.5 million reversed an $8.2 million (21.6%) decline from a recent fiscal 2008 peak with a fiscal 2012 gain of $650,000 (2.2%). Management expects a $600,000 (2%) increase in fiscal 2013, followed by annual gains in the range of 4% to 5%, which Fitch considers reasonable based on the improving economic climate and the two-year lag in state income tax distributions to the city.
MODERATE OVERALL DEBT
The city's overall debt is moderate at $3,155 per capita or 4.2% of market value, with no immediate debt issuance plans. The fiscal 2012 10-year capital improvement plan totals $463 million, considerably less than the $1 billion plan in place several years ago as many growth-related projects were postponed or canceled. Debt amortization is rapid, with roughly 72.8% of principal scheduled for retirement within 10 years.
MANAGEABLE IMPROVEMENT DISTRICT DEBT
Peoria improvement district no. 0601 has $3.5 million of its original $4.95 million in debt outstanding. The revenues pledged by the city for special assessment debt service are comprised of fixed assessments levied against benefiting properties within the boundaries of the district.
Four of the city's five district's bonds are matured as of Jan. 2013; the remaining debt for No. 0601 extends to 2022. Assessed revenues are healthy in relation to the improvement district No. 0601 bond debt service based on a flat debt service schedule and the lack of debt issuance plans. Fitch believes that city's contingent obligation with regard to the district's bonds represents a manageable liability in relation to its substantial resources. The city reports delinquent assessments at June 30, 2012 of a de minimus $338.
RISING PENSION CONTRIBUTIONS MAY PRESSURE MODERATE CARRYING COSTS
The city participates in several state-sponsored pension programs, the two largest being the Arizona State Retirement System (ASRS) for nonpublic safety personnel and the Arizona Public Safety Personnel Retirement System (PSPRS) for public safety employees, both cost-sharing multiple employer defined benefit plans. Both plans are characterized by below average funding levels using Fitch's more conservative 7% investment rate assumption, ASRS's funding level is estimated at 68% and the combined PSPRS program funding level is estimated at 64% as of June 30, 2011. The city's fiscal 2014 and multi-year forecasts budgets realistically assume rising pension contribution rates over the next couple years. Although the city's carrying costs, including debt service, pension and other post-employment benefit contributions is high at 25% of governmental spending. Furthermore, the upward trajectory of pension contributions is likely to pressure future budgets, though declining debt service could mitigate this somewhat.
RECOVERING LOCAL ECONOMY
The region's residential construction virtually collapsed in 2008 and ensuing years, as evidenced by fiscal year 2013 secondary assessed value (SAV) at only 57% of its fiscal 2009 peak. While the city projects a 7% decline in fiscal 2014 SAV, strong trends in single family residential and commercial permits are calculated to reverse the downward trend by fiscal 2015, based on current activity which will be reflected in the two year assessment process.
Local unemployment rates remain well below regional, state and national averages. The city's February 2013 rate of 6.3% continues to trend well below state and U.S. averages. The city's median household income continues to exceed state and national levels by more than 20%.
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=790833
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