SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the following Matanuska-Susitna Borough, Alaska (the borough) bonds:
--$19.3 million general obligation (GO) transportation system bonds, 2014 series A.
The bonds are scheduled to be sold via negotiation on or about Jan. 8, 2014.
In addition, Fitch affirms the following ratings:
--$275.9 million outstanding GO bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an unlimited ad valorem property tax levied against all property within the borough.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: The borough's financial performance is strong with generally positive operating results and healthy reserves.
LIMITED POPULATION AND ECONOMY: The borough's economy is inherently constrained by a relatively small population base and the seasonality of some local economic activity. The economy has gradually expanded and diversified, reducing this concern, but it remains the key factor limiting the rating.
HEALTHY DEBT PROFILE: The debt burden is moderate and most of the debt qualifies for state-reimbursement, limiting pressure on the local tax base. Pension and other post-employment liabilities are limited with significant state support for retiree costs.
SOLID MANAGEMENT PRACTICES: The borough benefits from healthy financial management practices, including conservative budgeting and a strong fund balance policy.
RATING SENSITIVITIES
EROSION OF GENERAL FUND BALANCE: Unrestricted fund balance draws below policy levels could trigger negative rating action, as a robust financial cushion mitigates credit concerns surrounding the inherently constrained nature of the borough's economy.
CREDIT PROFILE
The borough is located in south-central Alaska, approximately 40 miles northeast of the business district of Anchorage. The borough covers 25,265 square miles and has the fastest growing population in the state.
ONGOING ECONOMIC DIVERSIFICATION
The borough is now the third most populous Alaska municipality, with 93,801 people. The local economy and population have expanded rapidly since the early 1990s when increasing numbers of Anchorage workers began moving to the southern area of the rural borough due to the lure of affordable housing and large lots. About a third of borough workers commute to Anchorage, while about 12% commute outside of the region to work in the Alaska oil fields and elsewhere.
The economy remains small and more isolated than the average U.S. community, albeit with strong growth trends and increasing diversification. The borough remains the largest agricultural producer in Alaska. The economy has diversified with the expansion of tourism, construction, health care, governmental and retail sectors. The borough continues to develop and diversify its economy, with the development of Port MacKenzie and expansion of tourism infrastructure in addition to natural growth of the economy due to in-migration.
The borough's socio-economic characteristics are sound with median household income at 133% of the national level and 102% of the state median. The individual poverty rate of 9.7% is in line with the state rate (9.5%) and noticeably lower than the national rate (13.8%).
STRONG RECENT PERFORMANCE
The borough experienced a relatively muted version of the recent national economic downturn with no declines in taxable assessed values (TAV), continuing population growth and less pronounced increases in joblessness. The October 2013 non-seasonally adjusted unemployment rate of 6.4% was below the national average of 7.0%. The borough's jobless rate has averaged 7.2% over the past 12 months and has been on a generally declining trend for the last three years, albeit with fairly tepid job growth. Annual average unemployment rates tend to be higher than the national average because of the seasonality of work in Alaska.
Tax base growth has slowed significantly in recent years, but did not experience declines common in most of the country during the recession. TAV increased 3.7% in 2013 to $8.7 billion with growth averaging 2.2% since 2009. Recent growth is down significantly from the double-digit expansions of the last decade due to slowing in both residential and commercial development. Taxpayer concentration is not a concern with the top 10 payers representing only 4.3% of TAV and including a healthy variety of retail, health care, tourism, utility, and energy related concerns.
STRONG FINANCIAL PERFORMANCE
Financial performance has been significantly stronger than the typical U.S. municipality, offsetting the limitations of the gradually diversifying economy. The borough's general fund balance grew in seven of the past eight fiscal years through June 30, 2013. The borough used about $11 million in unrestricted fund balance for planned capital spending in fiscal 2012. Unrestricted general fund balance dropped to $53.3 million, but remained very strong at 74.2% of non-educational spending.
The Matanuska-Susitna Borough School District's property tax levy is booked as a revenue and expense of the borough but represent a pass-through of taxes to the district that does not put significant additional strain on the municipality's budgets. As such, Fitch considers the municipality's unrestricted fund balance as a percentage of non-educational expenditures the best measure of its financial cushion.
Fitch expects fund balance to remain near its current robust level over at least the next two years. Unaudited actual results for fiscal 2013 show fund balance resuming its upward trajectory, and management expects the borough's fiscal 2014 results to show approximately balanced operations. The borough's fiscal 2014 budget shows a $12 million draw on fund balance, but the borough's budgets tend to be very conservative in terms of revenue and expense projections. Similar projected deficits have yielded balanced operations and management expects the same this year.
SOLID MANAGEMENT PRACTICES
Financial management practices are solid with consistently conservative budgeting and a healthy fund balance policy. The borough must maintain a general fund reserve of at least 25% of all budgeted operating expenditures (excluding the school district) by borough policy. Financial decision-making appears efficient, with budgets delivered on time and in compliance with policies. Failure to maintain a strong financial cushion and adhere to reserve policies would place pressure on the borough's GO bond rating.
MANAGEABLE LONG-TERM LIABILITIES
Total net debt including overlapping jurisdictions is moderate at $3,312 per capita or 3.6% of TAV without adjustments for state support. The debt burden drops to a low $1,419 per capita or 1.5% of TAV after taking state debt reimbursement for eligible bonds into account. Amortization is healthy with 60% of bonds repaid in 10 years and all bonds repaid in 20 years. Even after a planned $50 million of additional bond issuances in 2014 and 2015, Fitch projects that the per capita debt burden would remain low after state reimbursement.
Pension obligations and other post-employment benefits (OPEB) are a significant but manageable expense. The borough routinely makes its full annually required contributions to the Alaska Public Employees Retirement System, the Supplemental Benefits System, and the Alaska Teachers Retirement System. The state is responsible for any actuarially required contributions in excess of 22% of payroll.
Carrying costs for debt service, pension and OPEB are moderate at 14.9% of governmental funds spending. Debt service accounts for the bulk of carrying costs, and the state of Alaska reimburses the borough for about 60% of debt service.
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, IHS Global Insight, Foster Pepper PLLC (bond counsel) and RBC Capital Markets (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=812910
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