SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings for Boise City, Idaho (the city):
--$24.7 million revenue refunding bonds series 2011A at 'AA';
--Implied unlimited tax general obligation (ULTGO) rating at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the city's general revenues and constitute a first lien on the city's general fund, with priority over any and all other obligations and liabilities, subject to any additional parity obligations.
KEY RATING DRIVERS
ECONOMIC RECOVERY CONTINUES: Boise's economy was hit hard by the recent downturn but appears well on the path to recovery. Employment levels and construction activity have increased steadily over the last several years and home prices have also begun to show improvement.
STABLE FINANCES: The city has maintained balanced operations and a strong financial position throughout the business cycle, due both to steady revenue growth and prudent adjustment of expenditures. Capital expenditures are funded from current resources and fund balances remain healthy.
REVENUE LIMITATIONS: Local property taxes account for the majority of general fund revenue and are subject to restrictions on annual growth. Continued revenue increases are dependent on growth in the underlying tax base as a result of a tax rate limit that the city approached during the recent downturn.
LOW DEBT LEVELS: The rated bonds are the city's sole general fund debt obligation and liabilities for retiree benefits are manageable.
RATING SENSITIVITIES
STRONG FUNDAMENTALS: The rating is sensitive to shifts in credit fundamentals, including the city's stable financial position and resilient economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely within the next several years.
CREDIT PROFILE
Boise is the capital of Idaho and a regional economic center. Knowledge-based businesses are especially prominent among the city's major employers and have helped attract a highly educated workforce. The city has a population of approximately 212,000 residents and has experienced above-average growth in part due to a reputation for high quality of life.
ECONOMIC RECOVERY CONTINUES
Boise experienced a sharp contraction during the recent downturn, losing 20% of its jobs and 29% of its property tax base, but its economic prospects have improved steadily over the past three years. Employment levels have increased on a year-over-year basis for 31 consecutive months and the city's 5.7% unemployment rate as of July 2013 was well below the 7.7% U.S. average. Construction activity, a major contributor to pre-recession growth, has also begun to recover, with steady increases in permit activity over the past five years. Home prices have generally lagged other indicators but as of August 2013 were 11% above prior year levels according to Zillow.com.
STABLE FINANCES
The city's financial position is healthy and has benefited from both stable revenues and management controls on spending growth. The city regularly achieves substantial operating surpluses before transfers, and funds most capital needs from current resources. Unrestricted fund balances are healthy and rose to 15% of general fund spending in fiscal 2012. Management projects a $3 million operating surplus in fiscal 2013 (equal to 1.8% of fiscal 2012 general fund spending), which Fitch considers reasonable based on the city's strong track record.
REVENUE LIMITATIONS
Boise's finances are supported by a property tax system that allows for annual revenue increases of up to 3%, plus new construction. Property tax accounted for 63% of general fund revenues in fiscal 2012, making such provisions a key credit consideration for the city. General fund revenues rose steadily through the recent downturn, largely on the basis of continuing property tax growth.
A cap on property tax rates of $9.00/$1,000 of assessed value (AV) presents a potential challenge to future growth and more generally to the city's operating balance. The large drop in AV during the downturn caused tax rates to rise 65% to $8.32/$1,000 in fiscal 2013 from $5.03/$1,000 in fiscal 2008, before dropping to $8.03/$1,000 for fiscal 2014. Management estimates that the city could withstand an 8% decline in AV before reaching the cap. The city appears unlikely to do so in the immediate future and is anticipating AV growth of 8% in 2014, but the rate cap presents an ongoing vulnerability for the city's general fund.
LOW DEBT LEVELS
Overlapping debt levels are low, at 1.4% of market value, and the rated bonds are the city's sole general fund debt obligation. Amortization is slightly below average with 47% of outstanding principal retired in 10 years. The city has consistently made annual required contributions to its adequately funded state-sponsored pension plan and OPEB liabilities are low as a result of limited benefits.
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 and Zillow.com.
Applicable Criteria and Related Research:
--'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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=805463
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