NEW YORK--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings affirms the 'AA-' rating on the city of North Olmsted, Ohio (the city) approximately $36 million outstanding unlimited tax general obligation (ULTGO) bonds and limited tax GO (LTGO) bonds. The Rating Outlook is Stable.
SECURITY
The city's ULTGOs (series 2006B and 2006D) are payable from unlimited ad valorem taxes levied on all taxable property within the city which is supported by a voted millage.
The city's LTGOs (series 2001, 2006A, 2006C) are payable from ad valorem taxes levied on all taxable property within the city, subject to the city charter's rate limitation.
CREDIT SUMMARY
Stable Rating: The city of North Olmsted is a wealthy, mature residential community located 13 miles southwest of downtown Cleveland. The city achieved surpluses in 2009 and 2010, despite declining revenue sources, which have resulted in a strong total fund balance consistent with its informal target of 10% of governmental spending. Management remains dedicated to expenditure controls and conservative budgeting.
KEY RATING DRIVERS
Strong Financial Management: Continued strong financial management supported by the city's willingness to cut costs and modify budget to maintain balanced operations and rebuild fund balance despite declining revenue sources.
Low Debt: Favorable debt position characterized by a moderately low overall debt burden, rapid amortization and limited capital needs. Low debt is supported by the city's ongoing dedication of a portion of its income tax revenue to capital improvement.
Diverse, Wealthy Tax Base: Proximity to downtown Cleveland has benefited the city as it has grown into a residential and retail center which attracts a well-educated, affluent workforce.
WHAT COULD TRIGGER A RATING ACTION
Maintained Financial Flexibility: While Fitch currently makes no distinction between the ULTGO and LTGO ratings, an erosion of taxing capacity or financial flexibility could result in future ratings distinction between the two securities.
CREDIT PROFILE
Located in Cuyahoga County, approximately 13 miles southwest of downtown Cleveland, North Olmsted is a wealthy residential community with a 2010 estimated population of 32,718. Its location along Interstate 480 led to the city's development as a residential and retail center for Cleveland's western suburbs. The city is benefiting from expansions to Westfield Mall, the adjacent shopping area, and North Olmsted Auto Mile. Management reports that this commercial development has added over $40 million to commercial assessed valuation in 2011. The city's broad economic base and proximity to downtown Cleveland attracts a well-educated and affluent workforce, with median household income equaling 136% of the county, 124% of the state, and 114% of the nation. Unemployment is consistently below county, state and national levels, equaling 7% in May 2011, compared to 8.2%, 8.5%, and 8.7% for the county, state and nation, respectively.
The city's financial position is sound, but faces challenges in the next few years. State aid reductions as well as reliance on economically sensitive income taxes coupled with cost increases will pressure the city's typically balanced financial operations. The city has taken measures to rebuild its fund balance to its informal target and has reduced recurring expenditures.
The city finished 2009 (Dec. 31 year-end) with a $459,000 operating surplus. This positive result was due largely to headcount reductions (20 personnel) through layoffs and attrition. According to the city's 2010 audited financials, the city achieved favorable financial results, with an operating surplus of approximately $982,000 bringing unreserved fund balance to 20.7% of general fund spending ($3.6 million). These positive results are due to reductions in ongoing expenditures from 2009 and in 2010, government restructuring, and conservative budgeting of revenues. Additionally, annual labor concessions contributed to ongoing expenditure controls. Importantly, Fitch notes that these favorable results are in spite of an 8.4% decline in assessed valuation affecting fiscal 2010 due to the county's triennial revaluation.
The city's 2011 budget is based on conservative revenue and expenditure assumptions, is balanced with reserves, and adequately manages anticipated state aid reductions. Further, the city conservatively plans to add resources to its budget stabilization fund as well as its newly established 27-pay-week fund and compensated absence fund. Interim financial reports suggest that year to date revenue performance are somewhat mixed. Management is committed to offsetting shortfalls with mid-year spending cuts if necessary.
The city's debt burden is low and principal amortizes rapidly. Borrowing needs are limited since the city allocates 15% of annual income tax revenues for capital purposes. Combined with modest debt issuance by overlapping jurisdictions, overall debt levels equal $1,942 per capita and a moderate 2.3% of full market value. The city participates in state cost-sharing pension and post-retirement benefit plans, and makes all required payments. All plans are adequately funded. No significant debt issuance is planned in the near term.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 08, 2010.
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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