TEXT - Fitch affirms Kentwood, Michigan AA-plus bonds
Jan 8 - Fitch Ratings has affirmed the following Kentwood, MI (the city) bonds: --$9.3 million limited tax general obligation (LTGO) bonds at `AA+'; --$3.2 million LTGO building authority bonds at 'AA+'. Additionally, Fitch has assigned an implied unlimited tax general obligation (ULTGO) rating of 'AA+'. The Rating Outlook is Stable. SECURITY The LTGO bonds are secured by the city's full faith and credit and its ad valorem taxing power, subject to applicable charter, statutory and constitutional limitations. The LTGO building authority bonds are secured by cash rentals under the lease between the authority and the city. The cash rentals constitute the city's full faith and credit general obligation and its ad valorem tax pledge, subject to applicable charter, statutory and constitutional limitations. The bonds are not subject to annual appropriation or subject to setoff or abatement for any cause. KEY RATING DRIVERS SOUND RESULTS: The city consistently maintains balanced operations, keeping fund balance at a healthy level. MODERATE CARRYING COSTS: The debt burden is easily managed and principal amortization is rapid. Pension and other post-employment benefit (OPEB) costs are low. STEADY ECONOMIC ENVIRONMENT: Residents benefit from employment opportunities both within the city and throughout the Grand Rapids metropolitan area. LTGO ON PAR WITH IMPLIED ULTGO: The LTGO bond are rated on par with the city's implied ULTGO rating on the basis of the financial flexibility provided by the city's elevated fund balance levels and the willingness of voters to approve a recent increase in the police and fire millage. CREDIT PROFILE SOLID SOCIOECONOMIC FUNDAMENTALS Kentwood encompasses a 22 square mile area located adjacent to the city of Grand Rapids. In addition to a variety of employment opportunities throughout the Grand Rapids metropolitan area, the city's local economy is anchored by Steelcase Corp. and Lacks Industries. While the regional economy has experienced some diversification in recent years, employment within the manufacturing sector is still 186% of the national norm. As of October 2012, the city's unemployment rate (5%) was significantly below the state average (8.3%) and national average (7.5%). Wealth levels are roughly on par with state and national averages. The city has experienced three consecutive years of declines in assessed valuation, with a cumulative decline of 12% during this period. Taxable values are projected to stabilize for the next several years. STEADY OPERATING PERFORMANCE PROVIDES FINANCIAL FLEXIBILITY The city's financial performance during the current recession has been commendable with balanced general fund operations after transfers for at least the past seven years. City officials exhibit strong management utilizing multi-year budget forecasts and capital improvement plans, which enables the city to proactively adjust its budget to changing economic conditions. The city ended fiscal 2012 (year ending June 30) with a nominal general fund surplus after transfers and a 17% unrestricted fund balance. The city has budgeted balanced operations again for fiscal 2013, and based on the mid-year review, management is confident such results will be achieved. The city has offset declines in property tax revenues with increases in state aid and close management of expenditures. The city is at its maximum operating tax levy, but several years ago voters approved an increase to the police and fire millage, providing additional financial flexibility. MODERATE CARRYING COSTS Overall debt is easily managed at 3.1% of market value or $2,447 per capita, with the majority coming from overlapping school districts. Principal amortization is rapid with 81% repaid within 10 years. Little additional debt is planned. Long-term liabilities associated with employment benefits are moderate. The city provides pension benefits to legacy employees through a single employer pension plan that was 86% funded as of Jan. 1, 2012, using Fitch's 7% return assumption. For employees hired after 1999, the city annually contributes to a defined contribution benefit plan with no further obligation. OPEB costs are nominal. The city provides a fixed dollar amount towards the retiree's healthcare premium until the retiree reaches Medicare eligibility. Overall carrying costs, including debt service, pension and OPEB costs are a moderately low 15% of general fund spending.
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