TEXT - Fitch affirms Manistee County, Michigan bonds

Thu Jan 17, 2013 5:01pm EST

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Jan 17 - Fitch Ratings affirms its rating on the following Manistee County
(the county) limited tax general obligation (LTGO) bonds:

--$1,590,000 LTGO bonds, series 2006, at 'AA-'.

In addition, Fitch assigns an implied unlimited tax general obligation (ULTGO) 
rating of 'AA-' to the county.

The Rating Outlook is Stable.

SECURITY 

The LTGO bonds are secured by the county's full faith and credit general 
obligation limited tax subject to applicable constitutional, statutory and 
charter limitations.

KEY RATING DRIVERS

POSITIVE FINANCIAL PROFILE: The county has stable finances and a willingness to 
control costs resulting in adequate fund balances and budget stabilization 
resources. 

CONSISTENT VOTER SUPPORT OF LEVIES: Property taxes, the county's primary revenue
source, are subject to pentennial voter renewal. The levy renewal risk is 
substantially mitigated by a strong history of voter support. 

LIMITED ECONOMY: The county's economy is limited but stable. 

AVERAGE DEBT PROFILE: Overall long-term liabilities are average and do not 
represent a cost pressure for the county. Prudently, the county has reserved 
funds for future OPEB payments. 

LTGO RATING ON PAR WITH IMPLIED ULTGO RATING: The LTGO bonds are rated on par 
with the implied ULTGO rating due to the strength of the county's reserves and 
implied financial flexibility. A reduction in financial flexibility could result
in a rating distinction between the two ratings.

CREDIT PROFILE

Located on the eastern shore of Lake Michigan, the county has a population of 
approximately 25,000.

STRONG FINANCIAL PROFILE

Financial management in the county is positive and characterized by conservative
budgeting and careful cost management. The county has experienced consistent 
positive operating margins over the past five audited years and reports a sixth 
surplus of $167,000 for 2012 (unaudited). The county's ending unrestricted fund 
balance in fiscal 2011 was $1.6 million (15.7% of spending). Positive operations
were achieved through continued cost containment in healthcare and wages and 
changes in staffing in the sheriff's department. Fitch considers as a credit 
positive that the county has additional financial flexibility of $1.4 million in
2011 in its budget stabilization fund.

The county's 2013 budget continues many cost-cutting measures from prior years 
and is balanced with a nominal use of fund balance. The county expects some 
ongoing budget pressure from Michigan's decision to phase out personal property 
tax and supplement locals at approximately 80%, but it anticipates some 
enhancement from both state Economic Vitality Incentive Program (EVIP) funding 
coming online for the county this year. 

The county has six renewable property tax levies, unlike many Michigan 
municipalities, which obviates concerns about Headlee Amendment rollbacks to the
county's financial profile. A history of strong voter support mitigates renewal 
risk. The levy renewals occur every five years and are staggered.

LIMITED, STABLE ECONOMY

The county's economy is limited, with Oaks Correctional Facility (state 
penitentiary) and the Little River Casino being the largest county employers, 
with approximately 800 and 400 employees, respectively, in 2010. Taxable 
assessed valuation (TAV) declined marginally (2.2%) in 2011, the county having 
largely been insulated from the housing boom-and-bust. Management expects TAV to
be flat in its 2013 budget. 

Current tax collections have weakened over the past three years to below 95%. 
Management reports that collections have returned to pre-recession levels due to
some recent economic strengthening. 

AVERAGE DEBT AND LONG-TERM OBLIGATIONS

The county's long-term liabilities do not represent a source of cost pressure 
for the county: the county's cost of carry in 2011 was a moderate 19.7% of 
general and debt service fund spending. The county's overall debt burden is 
moderate at 2.1% of market value and $2,451 per capita. Management has prudently
used a portion of casino revenues for capital improvements rather than 
operations to limit the budget's exposure to volatility in that revenue source. 
The county has no plans to issue any significant new debt. Amortization is 
somewhat above average at 60% in 10 years. Debt service in 2011 represented a 
low 1.9% of spending. 

The county participates in an agent pension plan administered by the Michigan 
Municipal Employees' Retirement System which covers substantially all county 
employees. Fitch expects that pension funding, which is currently a somewhat 
elevated 16.5% of FY 2011 spending ($1.5 million), will remain stable as the 
county fully funds its ARC. 

The county funds other post-employment benefits (OPEB) on a paygo basis, which 
represents a scant $190,000 in 2013 (1.9% spending). The OPEB unfunded 
actuarially accrued liability is an immaterial percentage (less than 0.1%) of 
market value. The county has restricted $922,000 for forward-funding OPEB costs.
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