Fitch Affirms Coopersville, MI LTGOs at ‘AA-‘; Outlook Stable

NEW YORK

Fitch Ratings has affirmed the following ratings on the City of Coopersville, MI limited tax general obligation bonds (LTGOs) outstanding:

–$1.27 million LTGO bonds, series 2006, at ‘AA-‘.

The Rating Outlook is Stable.

SECURITY

The LTGO bonds are backed by the city’s full faith and credit and a limited ad valorem tax subject to applicable constitutional, statutory and charter limitations.

KEY RATING DRIVERS

STABLE FINANCIAL RESERVES: Sound budgetary balance despite flat tax revenues has enabled the city to maintain sizeable financial reserves as a percent of budget yet small in nominal dollar amount.

STRONG MANAGEMENT TEAM: City finances benefit from a strong management team that practices conservative budgeting and has demonstrated a record of proactive fiscal action.

MODERATE DEBT: The city’s overall debt profile is moderate with minimal additional issuance expected. Carrying costs are manageable.

IMPROVING TAXABLE VALUES: Taxable assessed values suffered some declines during the recent downturn which have reversed with new development activity. The outlook is for a continued modest positive trend given current and planned building activity. The tax base is moderately concentrated in its top taxpayers.

SOUND ECONOMY: Residents benefit from employment opportunities both within the city and throughout the Grand Rapids metropolitan area. City unemployment rates have improved significantly to below state and national levels, as the city is benefitting from several new large local development projects. Overall city income indicators remain on par with state and national averages.

RATING SENSITIVITIES

STABLE CREDIT CHARACTERISTICS: The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch’s expectation that such shifts are highly unlikely. Upward rating action is unlikely due to the small tax and revenue base and the small nominal fund balance levels.

CREDIT PROFILE

The city of Coopersville is located in Ottawa County (rated ‘AAA’ by Fitch) approximately 15 miles outside of Grand Rapids. Population growth over the past decade has been average at 10% to 4,312 in 2013.

STABILIZING TAX BASE

The city’s tax base is stabilizing, with a return to modest growth following several years of declines. Taxable valuation registered 9.7% increase over the past three years to $105.2 million in 2015. The outlook for the tax base is stable to modestly positive based on current and planned building activity, which is important for the city budget given the high dependence on property tax revenues.

The tax base is diverse and the largest taxpayer is Continental Dairy Facilities, LLC which constructed a $120 million milk-drying plant. Also, a new $127 million milk product plant was completed in 2012 to house FairLife LLC – a partnership between Select Milk Producers LLC and The Coca-Cola Company and recently announced expansion to a second bottling line. Key to attracting these facilities were the recent city wastewater treatment plant improvements. Current development activity includes several new industrial companies and a tool and die company expansion. New residential development is limited.

AVERAGE ECONOMIC INDICATORS

Unemployment in Ottawa County has improved dramatically from a high of 12.1% in 2009 to an average 5.2% in 2014 (below the state and national averages). Labor force and employment gains were strong in 2014 as the county’s significant manufacturing and services sectors rebounded. Grand Rapids is currently one of Michigan’s best economic performers. The Grand Rapids area remains heavily dependent on manufacturing, which was a large factor in the severe recessionary impacts in the area. However, Fitch considers it likely that the economy will see continued job growth in 2015 and unemployment remain below average, given ongoing development activity along with the expanding education and health services sectors.

STRONG FINANCIAL PERFORMANCE

The city has maintained strong financial flexibility and reserves through conservative budgeting and careful expenditure controls. The budget is heavily dependent on property taxes, which makes up approximately 60% of general fund revenues. Taxable valuation declines 2010-12 resulted in a downward trend in property tax revenue, which the city was able to mitigate by limiting expenditures. Cost savings measures have included reduced hours for employees and a restructuring of emergency services. In addition to these actions, the city is also pursuing collaboration opportunities with other local area governments for additional savings. The city benefits from significant additional revenue raising flexibility in its charter millage under the Headlee cap if needed, totaling to about 25% of total revenues. Leading expenditures are for public safety at 50% of budget with annual transfers out primarily for pay go street capital projects.

Fiscal 2013 and 2014 general fund results were modestly positive with small surpluses further strengthening unreserved general fund balance which totaled $1.5 million or a high 42% of expenditures, though Fitch considers the nominal amount low. The city has maintained a robust general fund balance (as a percentage of spending) for at least the past seven fiscal years and intends to continue this practice to provide a cushion against possible future revenue declines. The city budgets conservatively and projects another year of roughly break-even results in fiscal 2015 – an outlook Fitch considers reasonable given past performance and positive economic trends.

MODERTATE DEBT; MANAGEABLE CARRYING COSTS

Overall debt levels are moderate to high at $5,305 per capita and 10.2% of market value largely due to sizable school district debt. The city’s direct debt is very low. Additionally, the city debt to full market value calculation is somewhat overstated given the significant amount of industrial tax exemptions. The pace of city debt amortization is above average with 74% of outstanding principal retired within 10 years. Capital expenditures for road and water main projects are funded primarily with identified non-general fund sources. Total annual carrying costs in fiscal 2014 for debt service and pensions were low at 10.2% of total governmental spending. The city has no other post-employment benefit obligations.

The city participates in the Municipal Employees’ Retirement System of Michigan (MERS), an agent multiple-employer defined benefit pension plan that covers all employees of the city. The annual pension costs are manageable at less than 1% of total general fund expenditures in 2014 and the plan is 78% funded as of Dec. 31, 2013 using Fitch’s 7% discount rate.

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 and IHS Global Insight.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981604

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Fitch Ratings
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Bernhard Fischer
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Fitch Ratings, Inc.
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