TEXT-Fitch rates Three Rivers Park District, Minn.
Oct 5 - Fitch Ratings has assigned an 'AAA' rating to the following Three Rivers Park District, Minnesota (the district) general obligation (GO) bonds: --$3.8 million GO bonds, series 2012A; --$22.9 million GO refunding bonds, series 2012B; --$2.9 million GO golf course revenue refunding bonds, series 2012C. Series 2012A bonds will finance acquisition and improvement of park property and facilities. Series 2012B bonds will refund certain maturities of the GO bonds, series 2005 and 2006A. Series 2012C bonds will refund the GO golf course revenue refunding bonds, series 2005. The bonds are expected to sell via competition on October 11. In addition, Fitch affirms the following ratings at 'AAA': --approximately $69.9 million outstanding GO bonds. The Rating Outlook is Stable. SECURITY The bonds are secured by the district's full faith and credit and unlimited ad valorem tax pledge. KEY RATING DRIVERS STRONG ECONOMIC BASE: The local economy is deep and diverse, anchored by the Twin Cities metropolitan region. Hennepin County residents display a superior socioeconomic profile reflecting above average wealth, employment and education levels compared to national norms. AMPLE RESERVES: The district maintains substantial unrestricted general fund balance, which has exceeded 40% of spending in each of the past five years. MANAGABLE DEBT PROFILE: Overall debt levels are moderate, both on a per capita basis and when measured against the substantial tax base. CONSERVATIVE MANAGEMENT: A history of conservative budgeting has yielded general fund operating surpluses (after transfers) in four of the past five years, augmented significant reserves and allowed management the flexibility to respond to fiscal challenges. CREDIT PROFILE STRONG ECONOMIC BASE Three Rivers Park District serves Hennepin County absent the city of Minneapolis, portions of Scott County, and a number of park facilities in five adjacent counties; however, the district's taxing borders encompass only Hennepin County excluding the city of Minneapolis. The district's recreational resources encompass 27,000 acres and recorded nearly 8.8 million visits in 2011, a 10.7% increase over 2010. The district serves an affluent community that benefits from a deep and diverse regional economy anchored by the Twin Cities. Both the financial services and durable goods manufacturing sectors account for a greater percentage of total employment as compared to the national average. The July 2012 county unemployment rate of 5.9% matched the state average and was well below the national average of 8.6%. Wealth indicators are above average with county per capita income levels at 121% of the state norm. AMPLE RESERVES AUGMENT FINANCIAL FLEXIBILITY The district's limited scope of service responsibilities coupled with the maintenance of strong financial reserves provides strong credit characteristics. The district has generated net operating surpluses after transfers for four of the past five years. A net general fund operating deficit of $927,805 (or a modest 2.5% of spending) was recorded in fiscal 2011, attributable to a planned transfer to another fund, and not indicative of budgetary imbalance. Financial margins are substantial with unreserved or unrestricted general fund balances exceeding 40% of spending for at least the past five years; fiscal 2011 ended with a general fund unrestricted balance (the sum of committed, assigned and unassigned fund balance classifications under GASB 34) of $16.7 million or 44.4% of spending. Management reports revenues are ahead of budget thus far for fiscal 2012 but expenditures may exceed budget due to unanticipated information technology expenses and an early retirement incentive program, the cost for which are currently unknown. Fitch believes that any general fund balance draws associated with these one-time costs should be easily managed, would not materially diminish financial flexibility, and may yield longer-term operational savings. The fiscal 2013 budget is not yet available. The district's operating budget is approximately 80% funded from real property taxes. The district is subject to a tax cap, under which the district is expected to have preserved a relatively narrow $1.2 - $1.3 million in additional levy capacity for fiscal 2013 (or the equivalent of roughly 3% of spending). The district's operating levy millage cap coupled with both economy-related assessed valuation declines and also a state formula assessed valuation change (effective 2013) serve to limit the district's revenue flexibility. The district, along with other affected entities, is working with the state on a legislative remedy for the unintended consequences of the formula change (an approximate $1.4 million impact to the district). Regardless, Fitch believes the district has enough expenditure flexibility to offset a moderate tax revenue decline. LONG-TERM OBLIGATIONS EASILY MANAGED Direct debt ratios are particularly low at $96 per capita and 0.08% of market value; overlapping borrowing raises debt levels to moderate $3,988 per capita and 3.4% of market value. Debt service claims a high proportion of operating resources at 22%; however, this is typical of a limited purpose district and is also reflective of the very rapid amortization rate of 100% in 10 years. The district's future borrowing plans include annual issuance of between $3.5 million and $5.5 million, which is less than the current principal amortization on outstanding bonds. Long-term liabilities related to employee benefits are modest. Most employees are in state-sponsored pension plans, and the district annually funds its full actuarial required contribution. By law, the district is required to provide the option for healthcare benefits to qualified retirees until the age of Medicare eligibility. However, the retiree is required to pay the full premium for continued coverage. The district's combined payment for pension and OPEB equaled a modest 3.6% of general fund spending.