2009-11-03 00:09:02 -
In the course of routine surveillance, Fitch Ratings downgrades North Las Vegas (the city), Nevada's $349.1 million general obligation (limited tax) bonds (LTGOs) to 'AA-' from 'AA'. The Rating Outlook is Negative.
All of the city's LTGOs are payable from statutorily- and constitutionally-limited ad valorem property taxes and are secured by the full faith and credit of the city. In addition,
most are additionally secured by pledged revenues ($169 million by net revenues of the water and wastewater systems (the utility) and $133 million by a portion of the city's share of consolidated tax revenues).
The downgrade to 'AA-' from 'AA' reflects the markedly weaker financial profile of the city, as evidenced by sizeable declines in property tax and consolidated tax receipts (largely consumption and development related) which have been caused by the severe housing-led recession.
This loss of revenue was beyond the city's immediate ability to respond with spending cuts, resulting in use of fund balance. The rating also reflects the diminished but still adequate reserve levels, management's multi-year plan to return the city to fiscal balance, a low direct debt burden, as well as the ongoing economic downturn as evidenced by a contracting job base and high unemployment rates. The Negative Outlook reflects the uncertainty of economic and financial recovery for the city. A rating downgrade could be triggered if the city is unable to make progress toward achieving structural budgetary balance in the next couple of years, if reserves fall significantly below current levels, or if the area economy and specifically the local real estate market does not stabilize over the same timeframe.
The city's financial position is strained but adequate. Despite a hiring freeze, budget cuts, and other reductions in spending, the district's unreserved general fund balance declined to an estimated $29.3 million or 14.4% of spending at fiscal year end 2009, down from $45.3 million or 22.7% of spending in fiscal 2008 and well-below the city's 18% fund balance policy. For fiscal 2010, the budget includes additional use of reserves, bringing the fund balance to $22.3 million or 12% of spending, and includes $14 million in expenditure reductions which are pending city council approval. The city's five-year projection, which is based on a moderate economic recovery in fiscal 2011 shows deficits through fiscal 2013, at which point the unreserved fund balance is projected to be $12.3 million or 5% of spending. An erosion in reserves of this magnitude would not be consistent with a rating in the 'AA' category.
The city's wealth indicators are mixed; per capita wealth levels are below national averages but per household levels are above average, reflecting the large number of persons per household typical of lower income areas. The city's unemployment rate trends well above state and national averages and rose to 14.9% in August 2009 compared to the state jobless rate of 9.6%. Assessed valuation (AV) declined 27% in fiscal 2010 from fiscal 2009, and with mortgage foreclosure rates among the highest in the nation, future AV declines are likely.
Debt levels are moderate at $2,572 per capita and 2.9% of market value including overlapping debt. Amortization is slightly better than average with 56.1% repaid in 10 years. The city is planning a $170 million issuance of LTGOs additionally secured by net revenues of the utility for April 2010 to expand its water reclamation facility. Most other capital projects have been delayed.
Fitch never explicitly assigned a rating to the following bonds.
However, Fitch has considered the bonds in prior rating affirmations.
--GO limited tax judicial public safety bonds series 2002A;
--GO limited tax street rfdg bonds series 2002B;
--GO limited tax judicial/public safety bonds series 2003;
--GO water & sewer refunding bonds series 2003;
--GO water & sewer refunding bonds series 2005A;
--GO water & sewer refunding bonds series 2005B;
--GO water refunding bonds series 2003B.
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Fitch RatingsJonathan Bodner, +1-212-908-0803 (New York)Karen
Ribble, +1-415-732-5611 (San Francisco)Media Relations:Cindy
Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
