Jan 23 () - Fitch Ratings has assigned an 'A-' rating to the City of New
Orleans, Louisiana (the city) $40 million taxable public improvement bonds,
The bonds are scheduled for a competitive sale on Jan. 30, 2013. Proceeds will
be used to finance street and other public improvements.
In addition, Fitch affirms the following ratings:
--$470.1 million general obligation (GO) bonds of the Board of Liquidation, city
debt at 'A-';
--$195.9 million limited tax refunding bonds, series 2012 at 'BBB+'.
The Rating Outlook is Stable.
The GO bonds are secured by an unlimited ad valorem tax levied against all
taxable property in the city. The limited tax bonds are special and limited
obligations of the city secured by the levy and collection of a 13.91 mills ad
valorem tax (such rate being subject to adjustment from time to time due to
KEY RATING DRIVERS
FINANCES IMPROVING; STILL CHALLENGED: The city's finances improved with 2011
audited results, as management's efforts to regain structural budgetary balance
produced a net gain and subsequent reduction in the negative general fund
balance. However, challenges remain as the city continues its effort to
establish and maintain a sound financial profile.
LONG-TERM ECONOMIC PROSPECTS GOOD: Recent economic news is mixed, as news of
infrastructure and commercial development projects is offset by a stalling of
employment levels. Overall, prospects appear positive, aided by increasing
tourism traffic, population gains, and major events scheduled for the next
CAPITAL ASSISTANCE CONTINUES: New Orleans has manageable debt levels but
sizeable capital needs; the city has obtained additional federal recovery money
to assist with infrastructure projects and expects more aid over the near term.
FINANCES BETTER; STILL CHALLENGED
The city's financial profile has improved but is still less than satisfactory.
Conditions weakened over the past several years as a result of reduced revenues
and ongoing spending pressures. Recovery efforts from Hurricane Katrina in 2005
drove spending for many services and departments higher (e.g. public safety
overtime), while use of federal and state recovery monies masked a widening
structural imbalance. The general fund recorded deficits and declining reserves
annually from 2007 - 2010, with the largest deficit of $51.6 million reported in
2009; the city's fiscal year coincides with a calendar year.
Audited 2011 year-end results showed general fund spending exceeding budget by
$25 million and revenues bettering budget by $12 million. The gap was closed
through the transfer of municipal court fund surpluses and a debt restructuring
that provided near-term relief. The negative unreserved position was reduced
from negative $11.6 million to negative $3.7 million, or less than 1% of nearly
$525 million in spending. General fund liquidity remained weak.
The 2012 budget was balanced, but revenues came in below budget (management
reports sharply lower natural gas prices negatively affected utility tax and
franchise fee revenues). To close an estimated $13 million gap, administrators
in the fall directed city agencies to reduce spending by 3.8% for the remainder
of the year. The current estimate is a modest drawdown of less than $5 million,
with the planned recovery of fund balance to positive territory now delayed
until 2013. The city's goal is to establish and maintain a 2% operating reserve
and 8% emergency reserve, both calculated as a percentage of general fund
Fitch will continue to monitor the city's progress towards this objective,
noting that any material deterioration in financial performance or meaningful
delay in establishing structural budgetary balance will not be consistent with
the current rating level.
ECONOMIC RECOVERY ONGOING
Economic recovery continues, although recent statistics suggest a moderate
slowdown. Employment growth in the city has slowed since 2010, although the
city's unemployment rate has ticked down from 8.8% to 8.1% in the 12-month
period ending October 2012. The October 2012 rate is higher than both the state
(6.2%) and U.S. averages (7.5%).
Management notes a number of commercial projects either recently completed or
underway, including the recent re-opening of the 1,200 room Hyatt Regency hotel
and construction on the $1.2 billion LSU-VA medical center complex. Also, the
mayor recently announced plans for several large retail stores in the city, and
the city has been cited recently by various publications and research outlets
for positive economic performance and future growth prospects.
Tourism continues to be a positive economic force, with the 2011 visitor total
of 8.75 million representing a 5.6% increase from the prior year. The city's
convention and visitors bureau also reported that tourism spending in 2011 was a
record $5.47 billion.
The city's estimated 2011 population of 360,000 is roughly 80% of the pre-storm
total, and the U.S. Census Bureau named New Orleans the fastest growing U.S.
city of 100,000 population or greater based on nearly 5% growth from 2010 to
Taxable values have continued to grow, although at a slower pace than the rapid
gains registered in 2007 and 2008. Values climbed more than 10% in 2007 and
jumped nearly 38% in 2008 thanks to citywide reappraisals. The gains for 2010
and 2011 were more modest at 3.5% and 3%, respectively, and slightly larger
gains of 6% and 5% occurred in 2012 and 2013. The taxable assessed valuation for
2013 is $3.09 billion.
AVERAGE DEBT LEVELS, CHALLENGED PENSIONS
The city's estimated overall debt burden is manageable at approximately $3,200
per capita and 4.7% of estimated market value. The pace of principal repayment
of the city's GO debt is above average at 70% repaid in 10 years. The city's GO
debt is issued by the Board of Liquidation (the board), which has an independent
board and manages all bonded debt matter of the city, including setting millage
rates for repayment.
These bonds are part of a 2004 authorization and will finance street and other
improvements; following this sale $105 million of the authorization will remain.
Management reports federal assistance for street repairs has totaled $200
million to date, with another $100 million anticipated.
The city has three major pension programs, one of which it administers as a
single-employer program. The other two are a state police pension program and a
firefighter pension program, the benefits and contributions for which are set by
the state legislature.
While the city-administered municipal employee program is funded at a
satisfactory level (70% using a 7% investment return assumption), the police and
firefighter pension programs are both underfunded (around 60% and lower for both
using 7% investment assumption). Management reports recent increases in employee
contributions for both the municipal and police programs, and negotiations
continue for firefighter plan changes. The city's other post-employment benefit
(OPEB) liability is roughly $162 million, down considerably from nearly $350
million due to a recent change requiring retirees to apply for Medicare coverage
at age 65.
New Orleans' five-year capital needs appear manageable at roughly $450 million,
the majority of which is for street improvements. The two largest funding
sources for the capital plan are $228 million in FEMA reimbursements and $105
million in three GO bond issues (including this sale).
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, Zillow.com, and the 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