2009-07-02 22:08:01 -

In the course of routine surveillance, Fitch Ratings affirms its 'AA' rating on the City of Kentwood, MI's (the city) approximately $12.3 million of outstanding limited tax general obligation (GO) bonds, series 2005 and series 2003 and approximately $5.8 million of outstanding Building Authority bonds, series 2001. The Rating Outlook is Stable.

The 'AA' rating primarily reflects the city's strong fiscal

management supported by conservative budgeting and solid reserve levels. The local and regional auto manufacturing and supplier presence is a credit vulnerability but is partially offset by an increase in education and food and nutrition production employment. Pressures in the housing market have led to a slight decline in state equalized value (SEV) in the current fiscal year, but taxable assessed value (TAV) continues to increase. The city's use of internal resources for a considerable portion of its capital activities result in a low direct debt burden.

Kentwood supplements its general operating levy with dedicated additional voted levies, and historically voter support has been strong.

Given the limited tax pledge supporting the bonds and the fact that the city is currently operating at its maximum levy, maintenance of adequate financial cushion is dependent upon proper management of budget pressures, including state aid reductions, and future voter-approved millage increases.

Located along the southeastern border of Grand Rapids, Kentwood is part of the Grand Rapids-Wyoming metropolitan area, and has a tax base that includes a combination of residential, commercial and industrial valuations of 43%, 31% and 25%, respectively. While TAV grew marginally at 1.05% for fiscal 2010, SEV did show a slight decline of 0.74%, which could potentially lead to declines in TAV and revenue pressure going forward. Manufacturing, including automotive and aerospace suppliers, food and nutrition production and furniture production are important segments in the local economy. Reflective of the 15.6% manufacturing concentration in the county's employment base, unemployment in Kentwood climbed to 9.1% in April 2009 from 4.7% the previous year. It appears that the city is fairing better than the county and state, both posting April 2009 unemployment rates of 10.1% and 12.6%, respectively.

Kentwood's diversified economy and management's attention to controlling operating costs results in consistently healthy general fund reserve levels. The city's unreserved fund balance in fiscal 2008 equaled $4.7 million, or 18.1% of spending, up from 17.9% of in fiscal 2007. The city expects a small surplus in fiscal 2009. The fiscal 2010 budget calls for a slight draw in fund balance although a history of conservative budgeting has lead to consistent surplus operations despite projected deficits. Balancing of out-year projected deficits is dependent upon enhancements to recurring revenue.

Kentwood's low direct debt burden is just $472 per capita, or 0.5% of property market value reflecting minimal borrowing needs as the city uses internal resources to finance capital projects. Including school district and county debt, overall debt equals a moderate $2,980 per capita or 3% of market value. The city has no near-term plans for additional tax-supported debt.

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Fitch RatingsDana N. Sodikoff, 312-368-3215, ChicagoJessalynn
Moro, 212-908-0608, New YorkorMedia Relations:Cindy
Stoller, 212-908-0526, New YorkEmail: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com