Fitch Affirms Wilson, NC’s $9.8MM GOs at ‘AA’; Outlook Stable
By Business Wire News
Fitch Ratings has affirmed the ratings on the following Wilson, NC (the city) bonds:
–$9.8 million general obligation (GO) refunding bonds, series 2009 at ‘AA’.
The Rating Outlook is Stable.
The bonds are general obligations of the city for the payment of which the city’s full faith and credit and unlimited taxing power are irrevocably pledged.
KEY RATING DRIVERS
AMPLE RESERVES AND LIQUIDITY: Prudent financial management has led to healthy reserve levels above conservative policy requirements and strong liquidity. Additional financial flexibility is derived from the city’s low millage rate.
LIMITED LOCAL ECONOMY: A somewhat diverse, manufacturing-based economy is tempered by above-average unemployment and below-average wealth and income indicators.
LOW DEBT PROFILE: Overall debt levels are low and principle amortization is rapid. Fitch expects annual carrying costs related to debt service, other post-employment benefits (OPEB), and pension benefits to remain manageable.
STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the city’s sound financial management. The Stable Outlook reflects Fitch’s expectation that such shifts are unlikely.
Wilson is located along Interstate 95 roughly 50 miles east of Raleigh. The city, with an estimated population of 50,000, continues to experience steady growth on par with the national average, with the population rising 11.8% since 2000.
LIMITED ECONOMY; DIVERSIFIED MANUFACTURING BASE
Taxpayer concentration is high, with the top taxpayer (a banking firm) comprising about 7% of taxable assessed value (TAV) and the top 10 taxpayers making up about 17% of TAV. Manufacturing makes up a significant portion of local economic activity, approximately 8% of TAV. Positively, there is a diverse mix of industries within the sector, including pharmaceutical, tire, and tobacco-related companies. Bridgestone Americas, Inc., one of the city’s top employers, is in the process of expanding its facilities. Several other companies are making investments in the area. These include several retail openings and the addition of two Wal-Mart grocery stores.
Socio-economic indicators trail those of the nation. The city unemployment rate has historically been between two and four points above the national average, reflecting the manufacturing-based economy and the seasonality of the tobacco industry. The city’s January 2015 unemployment rate of 8.3% remains above comparable state (6.1%) and national (5.9%) rates. While the January 2015 unemployment rate represents a decline from the prior year (8.9%), it also reflects a decline in labor force participation. Wealth and income levels are below average relative to state and national levels. The city’s poverty rate is 1.7x the national average.
STRONG RESERVES AND FINANCIAL FLEXIBILITY
Sound financial management has resulted in ample reserve levels and strong liquidity. The city ended fiscal 2014 with an unrestricted general fund balance totaling $16 million or nearly 36% of expenditures, exceeding the city’s reserve policy level of 25%. The city ran a fiscal 2014 surplus of $2.2 million, including capital asset sales and short-term debt proceeds, equal to 5% of spending, as opposed to the originally budgeted $3.6 million deficit. Adding the state-required reserve for receivables, which Fitch views as more conservative than the treatment of receivables in other states, results in a fiscal 2014 available fund balance of $20.2 million, or 45% of spending. Fitch regards these balances as available for operations if needed. Liquidity metrics are also strong, with fiscal 2014 cash and investments covering liabilities 5.8x.
Fitch believes the city has ample revenue raising ability and adequate room for expenditure reduction. Over the past several years, the city has been able to avoid layoffs, furloughs, and reductions in capital spending by achieving savings through prudent assessment of program costs and managing staff reductions (mostly through attrition and strategic re-hiring) as needed. Ample flexibility remains to raise the city’s millage rate. The city has no current plans to raise the millage rate and has not enacted an increase in the past seven years. Fitch believes that this is congruent with stable assessed value trends and does not pressure the credit. Management has indicated a willingness to consider a tax rate increase if needed to stabilize finances.
FISCAL 2015 EXPECTED TO OUTPERFORM BUDGET
The adopted fiscal 2015 budget incorporates a fund balance appropriation of $2.6 million. The budget conservatively projects a 9% decline in general fund revenues versus fiscal 2014 actuals. General fund expenditures are budgeted to be flat. This appears conservative as current estimates based on year-to-date performance indicate general fund revenues approximately $2.2 million ahead of budget and expenditures under budget. As a result, the city is currently projecting a modest deficit of $425,000. The city has a history of actual results outperforming budget expectations.
ENTERPRISE SYSTEMS DO NOT PRESSURE GENERAL FUND
The city’s broadband fund, which in the past relied upon a long-term loan from the gas fund, has generated sufficient revenues to cover operations, including debt service, for the past three years. Fitch believes that this fund is self-supporting and no longer considers broadband fund solvency a potential pressure on the general fund. Debt payable from the fund had been supported by the general fund in the past, but no longer requires this support.
General fund operations have historically been bolstered by transfers from the city’s electric and gas utilities. Transfers from the utility funds account for approximately 6% of general fund revenue in fiscal 2014, and have ranged from 8%-9% in prior years. The city is well within state requirements limiting the transfers from utility funds. Transfers currently represent 1.1% of the gross fixed assets, versus a state statutory limit of 3%. Fitch notes that these transfers are repayment for general fund services, mitigating concerns about the necessity of outside support for the general fund.
LOW DEBT; CARRYING COSTS ARE MODEST
Overall debt levels inclusive of broadband fund debt are low at $978 per capita and 1.2% of market value for fiscal 2014. Debt ratios excluding broadband fund debt, as it is considered self-supporting, are even lower at $436 per capita and 0.5% of market value for fiscal 2014. The county does not anticipate future debt issuance and plans to address capital needs on a pay-go basis. Amortization is extremely rapid at 100% of principal retired within 10 years. There is no exposure to variable-rate debt.
The majority of city employees participate in the state’s well-funded Local Governmental Employees’ Retirement System (LGERS), a cost-sharing multiple-employer plan. The city contributes 100% of the actuarially required payment. The plan is well-funded at around 97.1% when adjusted for Fitch’s 7% annual rate of return estimate. The city also administers a single-employer pension plan to provide supplemental benefits to qualified law enforcement officers and contributes 100% of the annually required contribution (ARC). Fitch notes that this is a credit positive as it is common for North Carolina municipalities to fund supplemental plans on a pay-go basis. OPEB is also funded on a pay-go basis. As of June 2011, the unfunded actuarial accrued liability for OPEB totaled $40.5 million or a moderate 1% of market value.
Annual carrying costs related to debt service, OPEB, and pension benefits represent an affordable 13% of governmental spending. Pension contributions represent almost half of the carrying costs at 6% of government spending.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.
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
U.S. Local Government Tax-Supported Rating Criteria
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Elizabeth Fogerty, +1 212-908-0526