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TEXT - Fitch affirms Terrebonne Parish, La. bonds
January 29, 2013 / 4:50 PM / 5 years ago

TEXT - Fitch affirms Terrebonne Parish, La. bonds

Jan 29 - Fitch Ratings affirms the following Terrebonne Parish, Louisiana
(the parish) general obligation (GO) bonds and sales tax revenue bonds: 

--$18.4 million GO bonds at 'AA-';

--$15.9 million public improvement sales tax bonds (PIBs) at 'AA-' (excludes 
PIBs, Series ST-2009 and ST-2011);

--$7.1 million public library sales tax bonds at 'AA-'.

The Rating Outlook is Stable. 

SENSITIVITY/RATING DRIVERS:

GOOD FINANCIAL FLEXIBILITY: Operating reserves and liquidity are robust. 
Additional flexibility is evidenced by the parish's significant general fund 
transfers for capital outlays.

RELIANCE ON VOLATILE REVENUES: Management continues to budget conservatively for
economically sensitive sales taxes and mineral royalties, which are the leading 
sources of operating revenue.

CONCENTRATED ECONOMIC BASE: Area employment and top taxpayers are concentrated 
in the oil and gas industry. Growth in taxable assessed valuation (TAV) 
continues aided by a stable housing market and development underway. 

OIL SPILL RECOVERY: Cleanup efforts from the British Petroleum (BP) oil spill 
have largely concluded. Drilling permits in the Gulf have increased and recent 
employment gains suggest recovery in the oil/gas and tourism sectors.

LOW DEBT BURDEN: The parish's debt levels are low, payout is average, and future
capital needs are manageable. Pension costs are rising and may present a 
near-term budget pressure.

SPECIAL TAX RATINGS ON PAR WITH GO: Strong coverage and solid legal provisions 
supports the 'AA-' special tax ratings that are on par with the parish's ULTGO 
rating.

SECURITY: 

The GO bonds are secured by the full faith and credit of the parish and payable 
from an unlimited property tax levied against all taxable property within the 
parish's boundaries. 

The PIBs are secured by 1/3 of 1% of the parish general sales and use tax and 
1/4 of 1% of a separate capital improvement sales and use tax. The PIBs also 
have a cash-funded debt service reserve equal to maximum annual debt service 
(MADS).

The public library sales tax bonds are secured by a 1/4% dedicated library sales
tax. The library bonds also have a cash-funded debt service reserve equal to 
MADS.

CREDIT PROFILE:

Terrebonne Parish is located on the Gulf of Mexico in southern Louisiana, 50 
miles southwest of New Orleans. The parish has an estimated population of 
112,000 which is up slightly from the 2000 Census.  

LOCAL ECONOMY CONCENTRATED IN OIL & GAS

Major industries include oil and gas production and services, commercial 
fishing, and marine transportation and shipbuilding complemented by employment 
in government, education, healthcare, and business services. The parish's tax 
base is concentrated in the oil/gas sector and there is some top taxpayer 
concentration, with the top 10 (mostly oil and gas businesses) comprising 21% of
TAV. Moderate TAV growth has continued following the recession; the 2012 
re-appraisal of existing values (occurring every four years in Louisiana) added 
5% to TAV. 

SIGNS OF RECOVERY FOLLOWING GULF OIL SPILL

The parish shed about 3,000 jobs (6%) from 2009-2011 as a result of the 
recession and impact of the BP oil spill in April 2010 and subsequent drilling 
moratorium, but recent indicators suggest moderate economic recovery. The 
drilling moratorium was lifted in October 2010 and deepwater drilling permits 
approved in the Gulf now exceed pre-spill levels. Employment totals in 2012 are 
up 3.8% for the 12-months ending November 2012, improving the unemployment rate 
to a low 3.2% from 4.7%. Additionally, BP continues to make claims payments to 
residents and businesses for economic damages, which has boosted area retail 
activity.  

FINANCIAL FLEXIBLITY AIDED BY PRUDENT BUDGETING PRACTICES 

The parish's exposure to economically sensitive revenues, consisting of sales 
taxes, state mineral royalties, and video poker proceeds, is mitigated by the 
high level of operating reserves and management's prudent budgeting practices. 
These revenues that are in excess of the budget are typically allocated for 
non-recurring expenditures and the parish delays spending the surplus funds 
until the subsequent fiscal year. 

Large transfers out for capital items and, to a lesser degree, revenue declines,
contributed to a significant net operating deficit after transfers in fiscal 
2009 (20% of spending). Management subsequently reduced in 2010 and then 
eliminated in 2011 the historically large (15%-20% of spending) transfers for 
capital spending. Joined with reductions to personnel and department budgets, 
the parish posted a very small fiscal 2010 net operating deficit and $2.9 
million net operating surplus after transfers in fiscal 2011 as sales taxes and 
mineral royalties exceeded forecasts.

Fiscal 2011 general fund balance was further boosted by an accounting change 
that moved several special revenue funds into the general fund. This change 
increased unrestricted general fund balance by $5 million to $18.9 million or a 
high 67% of spending. Liquid assets in the general fund were also robust at 
$23.2 million or 10 months of operating costs. 

USE OF FUND BALANCE IN 2012 & 2013 FOR CAPITAL 

The fiscal 2012 general fund budget originally appropriated $5.1 million (25%) 
of fund balance for drainage, roads, and other capital items but the parish 
estimates this draw-down was narrowed to $2.3 million on a budget-basis 
(unaudited; Dec. 31 fiscal year) due to surplus funds carried-forward from the 
prior year. Sales taxes through November 2012 were up 7.4% from prior 
year-to-date totals and much better than the budgeted 4% decline. The fiscal 
2013 $28.7 million general fund budget is 2.3% below the 2012 budget and calls 
for a similar $3.7 million use (equivalent to 12% of spending) of general fund 
balance to fund capital items. On a GAAP basis the ending 2013 unrestricted fund
balance would decline to a still solid 45% of spending. 

Fitch notes the maintenance of high reserves is critical to rating stability and
a key mitigant to the parish's exposure to volatile revenue sources and a 
concentrated economic base. Fitch also recognizes the parish's expenditure 
flexibility, demonstrated by its past willingness to defer, reduce, or eliminate
the pay-go contributions for capital improvements. 

INCREASING BUT STILL MANAGEABLE PENSION COSTS

The parish participates in three separate pension programs for municipal 
employees, police, and firefighters, and each plan's benefits and contributions 
are set by the state legislature. The city fully funds its actuarially 
determined required contributions but has seen sharp increases in the required 
contribution rates due to poor investment returns. Since fiscal 2009, the 
contribution rate for the police plan jumped from 10% to 31.5% of payroll, for 
firefighters from 13% to 29.3%, and for municipal employees from 6.3% to 10%. 
Despite the increase pension spending consumed a still affordable 4.7% of 2011 
governmental expenditures (excluding capital projects funds) but continued 
increases may pressure the budget in the near term. 

Other post-employment benefits (OPEB) for retiree healthcare are funded on a 
pay-as-you-go basis. The unfunded liability was $73 million for governmental 
activities as of Jan. 1, 2010, equal to 0.9% of estimated market value. Fitch 
views positively the parish's recent actions to reduce the UAAL which include 
limiting eligibility and reducing the parish's premium contributions.

AFFORDABLE DEBT BURDEN

Overlapping debt ratios are low at $1,293 per capita and 1.9% of market value. 
Amortization of sales tax and GO debt is average, with 58% retired in 10 years, 
and the carrying cost is affordable at 9% of governmental expenditures 
(excluding capital projects funds). Currently defined tax-supported debt plans 
to expand the parish's sewer system and fund street improvements would not 
materially impact the debt profile.

SPECIAL TAX BONDS COVERAGE REMAINS STRONG 

The parish plans to issue roughly $10.3 million in PIBs in spring 2013 which 
follows an $11.8 million issuance in 2011 (not rated by Fitch but on parity with
outstanding PIBs). The additional PIBs issuance dropped fiscal 2011 coverage of 
MADS to a still strong 3.3x from 3.7x. The planned 2013 sale would further 
reduce MADS coverage to 2.9x (estimated). The parish has not indicated plans to 
sell additional PIBs debt beyond 2013. Fitch notes that the lower coverage level
would remain comfortably above the 2.0x ABT. Coverage of library sales tax bonds
MADS remains very strong at 5.3x in fiscal 2011.

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