NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following Columbus, Ohio (the city) bonds:
--Approximately $326.8 million various purpose unlimited tax refunding bonds, series 2013-1;
--Approximately $41.9 million various purpose limited tax refunding bonds, series 2013-2 (federally taxable).
Proceeds will be used to refund the various purpose unlimited tax Build America Bonds series 2009C, 2010C, 2010-2C, 2010-3A, various purpose unlimited tax recovery zone economic development bonds series 2009E, and various purpose limited tax build America bonds series 2009D, 2010D and 2010-3B. The bonds are scheduled for negotiated sale the week of May 27.
In addition, Fitch affirms the 'AAA' ratings on the following outstanding debt:
--Approximately $1.714 billion unlimited tax general obligation (ULTGO) bonds;
--$432.7 million limited tax GO (LTGO) bonds.
The Rating Outlook is Stable.
SECURITY
The ULTGO bonds are secured by the city's full faith and credit and its ad valorem tax, without limitation as to rate or amount.
The LTGO bonds are secured by the city's full faith and credit and its ad valorem tax, subject to the 10-mill limitation.
KEY RATING DRIVERS
DEEP AND DIVERSE ECONOMY: The city's growing economy benefits from the stabilizing presence of various levels of government, Ohio State University (OSU), notable healthcare institutions and financial services.
STRONG MANAGEMENT: City officials have consistently demonstrated proactive and effective financial stewardship.
IMPROVING FINANCIAL FLEXIBILITY: The income tax increase in 2009 materially improved the city's trend in operating results. Unrestricted balances in the general and income tax funds provide additional margins of flexibility.
MODERATE LONG-TERM OBLIGATIONS: The aggregate debt burden is above average but manageable, principal amortization is rapid and future capital needs appear reasonable.
RATING SENSITIVITIES
STRONG FISCAL MANAGEMENT: The rating is sensitive to the maintenance of the strong fiscal management and budgeting practices that underscore the city's solid financial profile.
CREDIT PROFILE
DEEP AND DIVERSE ECONOMY
Columbus is anchored by a stable and growing economic base largely composed of professional and business services, healthcare, education, and government. As the state capital and home to OSU, the city's economy remained relatively resilient during the most recent national recession. Columbus' initial recovery from the recession was slower than other Ohio metropolitan regions but this is, in part, because the city experienced smaller recessionary losses.
Significant facilities investment by the healthcare and financial services sector, namely OSU, Nationwide Children's Hospital and Nationwide Insurance, are expected to add to the city's expanding employment base with an additional 10,000 new jobs over the next five years. A Hollywood Casino opened last year, adding another 1,300 jobs.
The city's March 2013 unemployment rate of 6.1% is below the state (7.3%) and is well below the national (7.6%) rate. The March rate is lower than the 6.6% recorded a year prior, attributable to growth in employment amidst a stable labor force. The city's population has increased 11% over the past decade, and residents are relatively well educated, with 32% of the adult population attaining higher education versus 28% for the national average. Wealth levels are slightly below average with per capita income at 92% and 85% of the state and national means, respectively, but are marginally negatively skewed by the OSU student population.
IMPROVING FINANCIAL FLEXIBILITY
The city's financial position materially improved with the passage of a permanent 25% increase in the city's income tax levy to 2.5% from 2% effective October 2009. Income taxes accounted for 62% of total general fund revenues in 2008, and 73% in 2012, after the rate increase.
The city reversed its negative operating trend in 2010, the first full year of collections at the new rate, recording general fund net operating surpluses (after transfers) equivalent to respectively 5.6% and 3.7% of spending in fiscals 2011 and 2012. A more modest net operating surplus in fiscal 2012 equivalent to 0.8% of spending lifted unrestricted general fund balance to a solid 16.5% of spending, well above the low of 8.2% recorded before full implementation of the income tax increase in fiscal 2009.
In addition, the city retains substantial unrestricted reserves in its special income tax (SIT) fund, which totaled $160 million at 2012 year end. This balance represents an additional cushion equivalent to 22% of general fund spending. Although the city does not intend to access the SIT reserves for operating relief, there are no restrictions on its usage. The SIT account is funded by the city's long-standing policy of allocating 25% of total income tax revenues to the SIT fund, and such funds are traditionally used to pay non-enterprise-supported GO debt service.
STRONG FINANCIAL MANAGEMENT
City officials continue to proactively respond to changing circumstances. Due to the state's elimination of the estate tax, accelerated phase-out of tangible property taxes, and reduction in local aid, the city calculates it will lose $16.8 million in revenue in 2013. Despite this projected revenue decline, the city's 2013 budget is balanced without use of nonrecurring revenues. Officials project balanced operations for fiscal year 2013; this projection seems reasonable to Fitch, given improving economic conditions and income tax receipts which are ahead of budget year-to-date.
Prospectively, Fitch expects the city will maintain structural balance fully and, pursuant to an updated 2013 resolution, will continue to replenish its economic stabilization (rainy day) fund (part of general fund) to $75 million by 2018 year end. The rainy day fund was $39.8 million at 2012 year end and $52.9 million at the end of April 2013.
MODERATE LONG-TERM OBLIGATIONS
The city's overall net debt load is above average at $2,758 per capita or 5.4% of market value. Indicative of its conservative financial practices, payout of GO debt is rapid, with 72% repaid within 10 years.
The city limits borrowing in accordance with its internal debt affordability policies and has no exposure to derivative risk. Columbus' large $2 billion capital improvement plan primarily addresses environmental mandates for the city's sewerage system and is expected to remain largely self-supporting from utility fees and charges.
Although the city retains substantial authorization for additional debt, officials anticipate requesting additional voted debt authorization at the November 2013 election. The city has a favorable record of voter support for debt, with 100% of referenda approved since 1985. Debt service equaled an affordable 10.8% of governmental fund spending in fiscal 2012. Fitch expects the tax-supported debt burden will remain manageable due to the city's historically prudent use of available debt capacity.
Columbus provides pension benefits through two state-sponsored defined benefit pension plans and is required by law to annually fund its full annual pension contribution (APC). Historically, the city paid the employee's portion of the pension contribution in addition to the city's APC payment (pension pick-up). The city has been negotiating phase-out of this practice in recent labor contracts. All negotiated contracts now include provisions to gradually reduce the pension pick-up, resulting in material pension cost savings to the city. Carrying costs for debt service, pension, and other post-employment benefits (OPEB) amounted to a moderate 20.5% of governmental funds 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, Underwriter, Bond Counsel and Financial Advisor.
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=791593
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