Fitch Rates City of Portsmouth, Virginia's $88MM GO Bonds 'AA-'; Outlook Stable
2010-02-12 20:25:04 -
Fitch Ratings assigns an 'AA-' rating to the following City of Portsmouth, VA's (the city) general obligation (GO) bonds.
--$63 million GO public improvement bonds, series 2010A;
--$25 million GO notes, series 2010B.
The bonds are scheduled to sell via competition on March 4.
Fitch also affirms following rating.
--$320 million in outstanding GO bonds at 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE.
--Improved financial
management demonstrated by significant expenditure reductions and conservative revenue forecasting supports the city's efforts toward maintaining a structurally balanced budget and continuing to diminish internal service fund deficits.
--Maritime activities, including shipping and naval operations, anchor the increasingly diversifying economy.
--The city of Portsmouth's overall tax-supported debt burden is expected to remain moderately low due to modest future capital needs. The decrease in the amortization rate from above-average to average levels reflects the debt service restructuring of the penultimate issue to achieve short-term cash flow savings.
--Employment indicators have remained sound, although wealth levels are well below average.
KEY RATING DRIVER.
--Maintaining adequate financial flexibility while continuing to reduce the reliance on one-time revenues for overall budget balance.
SECURITY.
The bonds are GOs of the city supported by a full faith and credit and unlimited taxing power pledge.
CREDIT SUMMARY.
Portsmouth, with an estimated 2008 population of 100,577, is located in the Hampton Roads region of Virginia, on the Chesapeake Bay. The city, whose population shows tentative signs of stabilizing this decade after slowly declining since the 1960s, is home to significant naval and port operations. The two most prominent influences are the Norfolk Naval Shipyard and the Naval Hospital, which together employ 13,000. The government sector is responsible for a high 60% of earnings, in contrast to 24% for the state and 17% for the nation, respectively. APM Terminals increased its presence in the city by relocating its North American headquarters to the site, complementing its $450 million shipping terminal. The MAST Center, an $80 million research and education park jointly developed with the city of Suffolk, has leased nearly half of its first office building, and leasing is underway for the second.
Development unrelated to shipping or military activities includes the 135-acre mixed-use Victory Village. Income levels are below average, at approximately 70% of the commonwealth and 80% of the nation. The December 2009 unemployment rate of 9% remains above regional and state rates although below that of the nation.
Improved financial management has strengthened the city's financial position, which had been weakened by the city's use of one-time revenues and increased transfers from the utility fund from fiscal 2005 to fiscal 2009 to balance its budget and increase reserve levels. The budget's structural imbalance, augmented by liberal revenue and collections projections, yielded general fund deficits in both fiscal 2007 and fiscal 2008. However, during the same time period the city strengthened its internal service funds by eliminating the deficit in its health insurance fund and reducing the deficit in its risk management fund. To avoid fund balance use in fiscal 2009, Portsmouth eliminated personnel and vacancies, approved furloughs, canceled pay-as-you-go capital funding and reduced its planned OPEB contribution. The city also restructured its debt service to achieve savings which will provide minimal operating support through fiscal 2012. The city ended fiscal 2009 with a $3.8 million general fund surplus, compared to $212 million of revenues, and an unreserved fund balance equal to 15.3% of revenues, above the policy floor of 15%, or to 12.3% of spending, a measure more commonly utilized by Fitch. The fiscal 2010 budget, the first biennial budget, achieves structural balance through a modest tax rate increase and does not incorporate furloughs or fund balance appropriation.
Tax-supported overall net debt levels are moderately low, at $3,576 per capita and 3.9% of market value, excluding the self-supporting GOs issued on behalf of the city's utility system. The current offering includes a GO note that will be taken out with long-term debt at the end of fiscal 2014, and in the penultimate issue the city issued a bond anticipation note totaling $29.9 million that will be taken out with long-term debt within the next three years; these notes are excluded from the slightly above-average amortization at 51% within 10 years.
The $309 million fiscal years 2010-2014 capital improvement plan is substantially debt financed (86%), including self-supporting utility bonds backed by the city's GO pledge. Despite city funding of its two closed pension plans at levels just around annually required contributions, funded ratios have declined and the total unfunded liability for both plans as of June 2008 was approximately $180 million.
Further declines in funded ratios are anticipated given recent market performance.
Applicable criteria available on Fitch's website at www.fitchratings.com :
cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .
--'Tax-Supported Rating Criteria' (Dec. 21, 2009);
--'U.S. Local Government Tax-Supported Rating Criteria', (Dec. 21, 2009).
Considerations for Taxable/Build America Bonds Investors
The following sector credit profile is provided as background for investors new to the municipal market.
Local Government General Obligation Bonds.
The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. local government can provide to the repayment of its long-term borrowing, and therefore is the best indicator of its overall credit quality. The average local government general obligation rating is 'AA-' with approximately 56% rated at or above 'AA-' and 7% rated 'BBB+' or below. The relatively high ratings reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and lack of competition for services provided by local governments. Those with low investment-grade or below-investment-grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities including debt and post-employment benefits, and/or unusually limited financial flexibility.
Additional information is available at www.fitchratings.com :
cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .
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Fitch Ratings, New YorkBarbara Ruth Rosenberg, +1-212-908-0731Christopher
Hessenthaler, +1-212-908-0773orCindy Stoller,
+1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
