NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following city of Jacksonville, North Carolina (the city) ratings:
--Implied general obligation (GOs) at 'AA-'.
In addition, Fitch affirms the following ratings:
--$27.1 million Jacksonville Public Facilities Corporation (the corporation) limited obligation bonds (LOBs), series 2012 at 'A+'.
The Rating Outlook is Stable.
SECURITY
The LOBs are payable from installment payments to be made by the city, subject to annual appropriation, to the corporation in an amount equal to debt service.
As additional security for the LOBs, the city has executed and delivered a deed of trust granting a lien on certain public safety facilities.
KEY RATING DRIVERS
MILITARY BASED ECONOMY: The city's economic base is somewhat limited and largely driven by the presence of the U.S. military. Continued investment in Camp Lejeune and Marine Corps Air Station New River signal longevity, though some downsizing is expected to occur through 2016.
BELOW-AVERAGE ECONOMIC INDICATORS: The city continues to exhibit below-average wealth indicators, and unemployment remains above state and national averages.
AMPLE RESERVES AND LIQUIDITY: The city has maintained unrestricted general fund reserves and balance sheet liquidity at a level that provides a considerable degree of financial cushion.
SOUND FINANCIAL MANAGEMENT: Controlled spending has mitigated revenue shortfalls with surplus results in the general fund for four of the last five fiscal years.
LOW DEBT AND CARRYING COSTS: Debt ratios are expected to remain low as the city has limited future capital needs and above-average principal amortization. Pension and other post-employment benefits (OPEB) costs are low and total carrying costs are expected to remain modest.
APPROPRIATION RISK: The rating on the LOBs is notched down from the city's implied GO rating, reflecting the appropriation risk inherent in the installment payments to be made by the city to the trustee and the essential nature of the financed assets.
RATING SENSITIVITIES
The rating is sensitive to activity at Camp Lejeune and New River Air Station, which anchor the city economy. A slowdown at these facilities with significant negative impacts on city finances could lead to downward rating action.
CREDIT PROFILE
The city of Jacksonville is located in Onslow County, along the New River just miles off of the Atlantic Coast. The city is home to Marine Corps Base Camp Lejeune and Marine Corps Air Station New River. The city's population, at 69,220 in 2012, fluctuates with deployment of resident military personnel.
STABLE FINANCIAL PERFORMANCE
Reserves are sound and financial flexibility is ample, attributable to prudent management. Conservative budgeting has allowed the city to realize positive results after transfers for four of the last five fiscal years.
General fund operations remained positive in fiscal 2013 with a $1.2 million operating surplus (after transfers). Actual expenditures were well short of budgeted projections, offsetting a 1.6% shortfall in actual-to-budgeted revenue due to underperformance of property taxes and the implementation of a change in the county's sales tax distribution formula in effect for the last three months of fiscal 2013.
Fiscal 2013 ended with an unrestricted fund balance equal to $10.7 million or an ample 26% of spending. In addition, Fitch considers a state statute-required reserve, which acts primarily to offset accounts receivable, a source of additional financial flexibility. The reserve totaled $6.3 million or an additional 15% of spending in fiscal 2013.
FISCAL 2014 YEAR-TO-DATE PERFORMANCE
The fiscal 2014 budget totals $45.2 million, or a decrease of 5.3% from the prior year, and includes a decline of $2 million in sales taxes in line with county policy. The budget also includes a $5.23 million (11.6% of budgeted spending) appropriation of existing fund balance. The level of fund balance appropriation is not inconsistent with prior budgets, and the city is presently forecasting an operating deficit of approximately $4 million at year-end, of which some $3 million will be used for capital with the remainder allocated to partially offset the sales tax revenue decline. As of March, 2014, revenues were in alignment with budgeted levels. Fitch expects a more modest use of reserves than currently projected, given the city's history of outperforming midyear projections.
MILITARY PRESENCE DOMINATES LOCAL ECONOMY
Camp Lejeune is the largest Marine Corps installation on the east coast. It was established in 1942 as the primary training facility for the Marine Corps. Current base duty assignment is estimated to be 46,000 for Camp Lejeune and 7,000 for New River Air Station. Department of Defense budget cuts expect to downsize the number of active duty marines by 5,800 through 2016, offset by reallocation of personnel from other bases, for a net loss of approximately 4,000 or 5.7%.
The military remains the most significant employment sector at over 14% of the city's employment base and a major source of economic activity. For the federal fiscal year 2013, the Marine Corps estimates that Camp Lejeune generates nearly $3 billion in commerce for the city and surrounding areas. The estimate includes annual payroll to military, civilian employees and retirees, material, supply and service contracts, healthcare for service members and families and on-base construction.
The city is also a center for retail sales for the region. Taxable sales have increased annually over the past five years, though 2014 taxable sales are down 2% from the same time 2013, due to slow performance in February as a result of the unusually cold winter. The unemployment rate of 7.7% as of December 2013 is above both state and national averages. Per capita money income remains below average, at 83% of the state and 75% of the U.S.
LOW DEBT AND OTHER LONG-TERM LIABILITIES
Overall debt levels are low at 2.2% of market value and $1,206 per capita, and are expected to remain so given the city's modest debt plans. Amortization is above average at 64% of principal retired in 10 years. Debt service represents an affordable 7.8% of governmental spending. The 2014-2018 general fund capital improvement plan totals just $39.2 million, including planned borrowing of a modest $6.5 million.
Pension and other post-employment benefits (OPEB) represent a manageable burden on the budget. The bulk of the city's pension cost is attributed to its participation in the statewide Local Government Employees' Retirement System (LGERS) which is considered very well-funded by Fitch. The city's fiscal 2013 total pension contribution (including LGERS and smaller city administered plans) was an affordable $1.8 million or 3.6% of governmental spending.
For OPEB the city pays its obligation on a pay-go basis and benefits only extend to the age of Medicare eligibility. New hires as of July 2010 are not eligible for retiree health insurance benefits. For fiscal 2013 the annual contribution to OPEB represented less than .5% of governmental spending, which is not materially lower than the annual required contribution (ARC). Total carrying costs constitute a modest 11.7% of governmental spending, which Fitch expects to remain stable, given the city's modest debt plans and stable pension and OPEB costs.
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.
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
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