NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Cleveland-Cuyahoga County Port Authority, Ohio RITA project (RITA, or the agency) as part of its continuous surveillance effort:
--$16.4 million outstanding development revenue bonds, series 2004 (RITA project) affirmed at 'A-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--RITA provides an essential service; however, member retention is reliant upon a competitive fee structure, efficient tax collection and dispersion procedures, and continuing municipal income taxation.
--Both membership and tax revenue collections have increased in recent years, providing a healthy revenue stream to support operations and debt service.
--RITA operates on a cost-recovery basis whereby expenses are deducted prior to monthly remittance of net income tax revenues to its members.
--Fitch believes RITA has significant flexibility to adjust its fees to compensate for potential declines in tax revenue collected.
--Principal amortization is rapid with 81% repaid within 10 years, and future capital needs will be internally funded.
--Lease rental payments are subject to annual appropriation, are payable primarily from an economically sensitive tax, and are secured by less-than-essential pledged assets.
--Bondholder protections are limited, as there are no limitations on additional debt (although none is envisioned), and a state takeover of local income tax collections would not be considered a contract impairment.
KEY RATING DRIVERS:
RITA's continuing ability to provide an efficient, cost-effective method of collecting income taxes.
SECURITY:
The bonds are special obligations payable solely from rental payments made by the Regional Council of Governments (RCOG) to the Cleveland-Cuyahoga County Port Authority, subject to annual appropriation. The rental payments are payable from net revenues of RITA. There is a leasehold interest in an HVAC system, computer equipment, computer software, and certain other furnishings. The bonds are also secured by a cash-funded debt service reserve equal to the IRS standard.
CREDIT SUMMARY:
RCOG, acting through RITA, was organized in June 1971, and administers income tax collection and enforcement for 185 municipalities in 59 counties throughout Ohio as of February 2011. RITA collects local income taxes for its members and retains a percentage of taxes collected, usually 2%, to fund operations and pay debt service. The RCOG is authorized to amend or adjust the withholding percentage from its members, up to 5%, to mirror changes in the agency's administration costs. Since the agency is not permitted to accumulate reserves under its accounting standards, any excess retainer is refunded to its members and conversely any shortfall is recovered the subsequent year. Costs are allocated to each of the members based on its percentages of transactional volume and tax receipts to total volume and tax receipts. Bond proceeds were used to purchase computer hardware and software, an HVAC system, and certain other furnishings.
Members may withdraw from the RCOG effective Dec. 31st of any given year unless the member repeals its income tax, in which case the withdrawal becomes effective upon final settlement of funds collected. However, in practice, the number of municipalities served by RITA has consistently increased over the past decade from 86 members in 2000 to 180 in 2010. Since the agency's inception, less than 10 municipalities have left, including two members that have since rejoined. RITA's primary competition is self-collecting municipalities which, in the aggregate, collected roughly 63% of all Ohio local income taxes in 2009, followed by the cities of Columbus and Cleveland, which each collected 9% while acting as collection agents for themselves and other municipalities. RITA has been able to maintain its market share of income tax collections at between 18%-21% for the past five years.
Income taxes collected by RITA have increased 41% over the past four years from $541.4 million in 2005 to $763.4 million in 2009. RITA retained $17.2 million or 2.3% of the aggregate 2009 tax collections to pay its expenditures, including $2.55 million for debt service. Since 2000, the agency has annually retained between 1.9% and 2.7% of total tax collections to fund its operations. The city of Youngstown, the largest recipient of income tax revenues, accounted for roughly 5.4% of the total 2009 collections and the top five municipalities accounted for 18%.
The state of Ohio collects certain other taxes including the state income tax and taxes relating to income earned by utility companies. Periodically, there has been discussion at the state level regarding state collection of the local income tax; however, it appears RITA's cost of collection is materially lower than that of the state, which anecdotally charges roughly in the 4%-5% range for other tax collection services.
RITA provides employment benefits to its employees including pension and other post employment benefits (OPEB). The agency participates in a state sponsored plan, and has contributed its actuarially required contribution ($1.1 million in 2009) for at least the last three years. OPEB is offered to qualifying retirees and their dependents as a monthly healthcare stipend until the beneficiary reaches Medicare eligibility.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the Tax-Supported Rating Criteria this action was additionally informed by information from Creditscope, LoanPerformance, Inc., University Financial Associates, and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria,' dated Aug. 16, 2010.
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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