TEXT-Fitch affirms Cheboygan Area Public Library, Mich. GOs
Feb 14 - Fitch Ratings affirms the following rating on Cheboygan Area Public Library, MI (the library) securities: --Approximately $2.3 million in general obligation unlimited tax (ULTGO) bonds, series 2004, at 'AA-'. The Rating Outlook is Stable. SECURITY The bonds are secured by the library's full faith and credit and its ad valorem taxing authority, without limitation as to rate or amount. KEY RATING DRIVERS STRONG FINANCIAL POSITION: The library's reserves are notably and consistently strong despite recent marginal draws, an important credit strength given the limited revenue-raising capacity shared by all local governments in Michigan. . SMALL, TOURISM ECONOMY: The service area is small and centered on tourism with high off-season unemployment, low resident wealth levels, a large seasonal population, and limited occupational opportunities. MANAGEABLE LONG-TERM LIABILITIES: Debt service carrying costs are high but mitigated by the library's single-purpose nature and limited operating risk. The absence of debt plans will keep its overall debt ratios manageable. Pension and other post-employment benefit (OPEB) costs do not represent budgetary pressure. RATING SENSITIVITY: Fitch expects the library to retain its high reserve position to counterbalance concerns over the small service area and revenue constraints, credit factors that Fitch believes limit the rating to its current level. CREDIT PROFILE The library's service area covers 286 square miles at the northernmost tip of Michigan's lower peninsula, proximate to Mackinac Island, serving the city of Cheboygan and seven surrounding townships (district population of 13,993) with a considerably larger population during the summer months. STRONG FINANCIAL POSITION DESPITE VARIABLE FINANCIAL PERFORMANCE The library's reserves are a notable credit positive at 127% of general fund expenditures in 2012 and have remained above 125% of spending for at least six years. Healthy reserves will remain key to the library's rating; however, Fitch notes that in absolute terms the library's fund balance is modest at $657,000. Fitch views positively the district's adoption of a conservative fund balance policy reserving 50% of prior years' spending; such prudent management will help the library navigate the challenged revenue-raising environment typical of Michigan localities. Options for library revenue enhancement are limited to voter-approved millages. Financial performance has been variable over the past six years, with a $22,000 draw in 2011, representing 4% of general fund spending. Voter approval of an operating millage in 2010 helped the library break even in 2012. The district's 2013 budget includes a small use of fund balance ($20,000 or 3.8% of spending) for operations due to staffing increases. The district reports being on budget for the year, which Fitch believes is reasonable given the district's history of generally realistic budgeting. LIMITED SEASONAL ECONOMY The library's service area is limited, focused on tourism and supporting service interests. The local economy benefits from its location on the south side of the Mackinac Bridge, which connects the Lower and Upper Peninsulas in Michigan. Proximity to Mackinac Island adds to the tourist allure. Market value per capita is a high $284,000, positively skewed by the sizable non-resident population, and is down 21% from its peak in 2007. The seasonal nature of the economy is evident in the monthly unemployment trends, which show below-average rates May through October, and well above-average rates for the remaining months of the year. Year-over-year analysis shows little recessionary impact on summer unemployment rates; winter rates have moderated from about 22% at the height of the downturn in winter 2010, versus a peak of 17% in winter 2012. Cheboygan Memorial Hospital, formerly the area's largest employer, filed for Chapter 11 bankruptcy protection in March 2012 and recently re-opened under new management as an outpatient and emergency facility with a 60% reduction in staff (to 200). Management reports no disruption in property tax payments related to the bankruptcy. Per capita income for year-round residents is 62% of the state and 57% of the U.S. (city of Cheboygan), reflecting the rural area, limited service-based economy, high seasonal unemployment, and higher than average proportion of retired residents. The individual poverty rate in the city is notably high at approximately 250% of the state's rate. MANAGEABLE LONG-TERM LIABILITIES The district's carrying cost of debt service, pension, and OPEB is notably high at approximately 37% of fiscal 2012 governmental (net of capital) fund spending. The high annual debt service cost burden (33%) is typical for special purpose districts given their limited operations. Fitch expects the average per capita debt burden ($3,331) to moderate given the district's lack of capital needs and rapid amortization of over 70% in 10 years. Debt to market value is below average at 1.2%, reflecting the significant property investment of seasonal residents. The library provides a defined benefit cost-sharing pension and OPEB plan for hires prior to 1995, the annual cost for which is minimal at approximately $24,000 or 4.5% of governmental spending in 2013. Employees hired in 1995 and after are members of a defined contribution plan and are not eligible for OPEB. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors. Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 14, 2012); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012). Applicable Criteria and Related Research: Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria
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