NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on Lee's Summit, Missouri's (the city) unlimited tax general obligation (ULTGO) bonds and certificates of participation (COPs):
--$19.1 million series 2003, affirmed at 'AAA';
--$14.5 million series 2006, affirmed at 'AA'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--The city benefits from a diverse local economy anchored in communications, transportation, healthcare and government, further augmented by its proximity to Kansas City.
--Residents display a superior economic profile with above-average wealth levels coupled with below-average unemployment rates.
--Assessed values (AV) have declined for the past three years; however, general fund revenue sources are diverse and the associated decline in property tax revenues has had a minimal effect on operations.
--The general fund historically has featured sizeable financial reserves, although a one-time application of fund balance for a legal settlement in fiscal 2011 reduced the cushion.
--The city's debt burden is average and amortization is rapid.
--The two-notch rating distinction between the GOs and the COPs reflects appropriation risk and the less essential nature of the asset.
SECURITY
--The general obligation bonds are secured by the city's full faith and credit and its ad valorem tax, without limitation as to the rate or amount.
--The COPs are secured solely by the city's annual appropriation of any legally available revenues. There is a leasehold interest in two parks, which Fitch considers less than essential to core government services. The bonds carry a debt service reserve fund equal to 10% of par.
CREDIT PROFILE
Lee's Summit is a suburban community in the Kansas City metropolitan area well-serviced by several major roadways providing for easy access to the entire metro region. Local employers are diverse and include AT&T, Truman Medical Center - Lakewood and Longview Community College. Unemployment rates have historically been below state and national averages and as of June 2011 the rate was 7.3%, which is well below the state and national rates of 9% and 9.3%, respectively. Cerner Corporation (healthcare data services provider) recently announced an annual $25 million expansion over the next five years and a number of other small companies have also announced expansion plans.
The city is growing with the 2010 estimated population of 91,364 representing a 29% increase over 2000 levels. Wealth levels are above average. Median household income is approximately 162% of the state and 145% of the national averages.
Property taxes, the city's largest revenue generator, account for approximately 30% of general fund revenues and while the tax base is diverse, AVs have declined approximately 2% in each fiscal year since 2009. According to city officials most of the 2011 decline has been driven by commercial properties, which account for 20% of total AV. To counter the recent AV declines, city officials proposed a 1.9% property tax roll-up for fiscal 2012 which does not require voter approval prior to enactment. The city did not include the benefits of any increase in the budget and is conservatively budgeting property tax growth despite knowledge of several new projects that should substantially add to the tax roles.
Sales tax represents approximately 20% of general fund revenues. Fiscal 2011 marks the first full year of year-over-year growth and preliminary results indicate that sales tax revenues were 4% higher than budget. An upscale shopping center completed in late 2009 was the main driver behind the increase in sales taxes. The shopping center is approximately 80% occupied and the city expects further increases in sales tax revenues as the shopping center reaches full occupancy.
General fund expenditure growth has been minimal for the past two fiscal years; management indicated that the city has been actively reducing expenditures in all departments. Fiscal 2011 marks the first year of zero merit-based wage increases for city employees after 29 consecutive years of increases. Management remains dedicated to finding savings where available while remaining service neutral.
The city ended fiscal year 2010 with a robust unreserved general fund balance of $27 million or 51% of total expenditures. In fiscal 2011 the city reached a legal settlement in a civil case which reduced the unreserved general fund balance by $15.5 million. A planned capital outlay of $3.2 million for general improvements combined with the legal settlement drastically reduced unreserved general fund balance to 13% of total expenditures or $10.4 million. Despite the general fund balance decline, reserves remain adequate. The city anticipates restoring fund balance to its target of 20% of expenditures by fiscal 2013 through cost containment actions.
The city's debt burden is average at $3,502 per capita and 4.7% of total market value; principal amortization is very rapid with 93% of the total retired within 10 years. Maximum annual debt service in 2020 as a percentage of current expenditures is elevated at 20%; current debt service is also high at 16%. In November 2010 a $37.4 million bond authorization was approved by voters; $12 million of the authorization has already been issued and the city expects to issue another $10 million to $20 million in fiscal 2012. The additional debt will have no material effect on the city's debt burden.
The city participates in the Missouri Local Government Employees Retirement System (LAGERS), a defined benefit agent multiple-employer public employee retirement system. Annual required payments are manageable at 8% of general fund expenditures. As of Feb. 28, 2010 LAGERS was just adequately funded at 74% using Fitch's more conservative 7% rate of return. The city provides other post employment benefits solely as an implicit rate subsidy until the retiree reaches Medicare eligibility. The liability is funded on a pay-go basis and the unfunded actuarial accrued liability totaled less than 1% of total market value.
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, University Financial Associates, 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 16 Aug. 2010.
'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct. 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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