Feb 19 - Fitch Ratings assigns an 'AA' to the following Matanuska-Susitna
Borough, Alaska (the borough) bonds:
--$12.8 million general obligation (GO) school bonds, 2013 series A.
The bonds are scheduled to be sold via negotiation on March 5, 2013.
In addition, Fitch affirms the following ratings:
--$281.8 million outstanding GO bonds at 'AA'.
The Rating Outlook is Stable.
General obligations of the borough under a full faith and credit pledge. The
borough is obligated to levy ad valorem taxes upon all taxable property for the
payment of bond principal and interest, without limitation as to rate or amount.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The borough's financial performance is strong,
benefitting from sound fiscal policies and ample reserves.
DECLINING BUT AMPLE RESERVES: Fitch expects the borough's reserves to remain
within its 25% policy despite systematic draws to for capital and operations
over the last few years.
LIMITED POPULATION AND ECONOMY: The borough's economy is inherently constrained
by a relatively small population base and the seasonality of some local economic
activity. The economy has gradually expanded and diversified, reducing this
concern, but it remains the key factor limiting the rating.
MILD RECESSION: Job creation, population growth, and assessed value (AV) gains
continued throughout the recession, in marked contrast to most of the nation.
Unemployment tends to run higher than the nation due to the seasonality of
economic activity in the area, but income levels are solid.
STRONG DEBT PROFILE: The debt burden is low after netting out debt supported by
the state of Alaska and amortizes rapidly.
EROSION OF GENERAL FUND BALANCE: Unrestricted fund balance draws below policy
levels could trigger negative rating action, as robust financial cushion
mitigates credit concerns surrounding the inherently constrained nature of the
The borough is located in south-central Alaska, approximately 40 miles northeast
of the business district of Anchorage. The borough covers 25,265 square miles
and has the fastest growing population in the state.
ONGOING ECONOMIC DIVERSIFICATION
The borough is now the third most populous Alaska municipality. While the
borough is the largest agricultural producer in Alaska, the local economy began
expanding in the early 1990s, diversifying into other types of commercial
enterprises, including tourism, health care, and retail. Major economic and
employment developments are underway related to the large Goose Creek
Correctional Center, Port MacKenzie, and expansion of tourism infrastructure.
The borough experienced a relatively muted version of the national economic
downturn similar to other Alaska communities. The unemployment rate averaged
8.3% in 2012, close to the national average of 8.1% for the year, but higher
than the state's 7.1% rate. A significant number of local workers commute to
part-time jobs in Alaska's northern oil fields, boosting the ongoing level of
joblessness. The borough's socio-economic characteristics are relatively robust
with median household income at 130% of the national level and per capita money
income at 102% of the national average. The individual poverty rate of 9.9% is
in line with the state rate (9.5%) and noticeably lower than the national rate
The tax base has been consistent over many years although slowed
during/following the recession. Taxable AV increased 2.1% and 1.8% in fiscal
years 2012 and 2013 respectively to $8.5 billion, an improvement from growth of
less than 2% in 2010 and 2011. Tax base performance compares favorably with many
other U.S. municipalities that experienced tax base erosion in recent years, but
AV growth remains well below the double-digit percentage gains enjoyed in the
middle of the last decade.
Ongoing new residential and commercial construction continues to gradually boost
AV. Taxpayer concentration is not a concern with the top 10 payers representing
only 4.4% of taxable AV and including a healthy variety of retail, health care,
tourism, utility, and energy related concerns.
STRONG FINANCIAL RESULTS BUT DECLINING GENERAL FUND BALANCES
The borough's general fund balance grew annually between fiscal years 2006 and
2011. Fiscal 2011 ended with a high unrestricted general fund balance totaling
$64.4 million (60.6% of spending), up 13.8% from an unreserved fund balance of
$56.6 million the year prior.
Balances remain strong but the fiscal 2012 unrestricted general fund balance of
$54 million (44.5% of spending) represents a significant decline. The drawdown
reflects pay-as-you-go capital expenditures (for which reserves were
specifically set aside) and short term maintenance of mill rates at their
The borough's fiscal 2013 budget includes further unrestricted general fund
balance erosion to $43.6 million (33.6% of spending), but Fitch believes borough
expectations for favorable budget variances are reasonable and consistent with
historical performance. Fiscal 2013 general fund revenues are coming in stronger
than expected particularly due to state funding over and above amounts already
Fitch expects reserves to remain robust due to conservative budgeting and strong
financial management policies. By borough assembly policy, the borough must
maintain a general fund reserve of at least 25% of all budgeted operating
expenditures (excluding the school district). Failure to maintain a strong
financial cushion and adhere to reserve policies would place pressure on the
borough's GO bond rating.
Fitch believes labor agreement constraints could affect the borough's future
expenditure flexibility. The borough's labor agreements do not contain salary
reopeners and do not allow the borough to unilaterally suspend or eliminate
contracted salary and wage increases. These labor agreements also require future
year wage increases, no lay-offs, and binding arbitration. More positively, they
do not prohibit furloughs and do not require consideration of regional
compensation in salary and wage adjustments.
MANAGEABLE DEBT BURDEN
The borough's debt burden is low after taking into account state support,
largely for school district debt. Total net debt including overlapping
jurisdictions is moderate at $3,220 per capita or 3.3% of market valuation
without adjustments for state support. The borough is financially accountable
for a legally separate school district which is reported separately within the
borough's financial statements.
The overall net debt burden drops to a low $1,216 per capita or 1.3% of market
valuation after taking state debt reimbursement for eligible bonds into account.
Debt amortization is above average with approximately 61% of bonds repaid in 10
years and all bonds repaid in 20 years. Even after a planned $129.1 million in
additional bond issuances in 2013 and 2014, Fitch projects that the per capita
debt burden would remain low after state reimbursement.
Pension obligations and other post-employment benefits (OPEBs) are a significant
but manageable expense. The borough routinely makes its full annually required
contributions to the Alaska Public Employees Retirement System, the Supplemental
Benefits System, and the Alaska Teachers Retirement System. The state is
responsible for any shortfall if the annually required contribution rate needs
to be in excess of 22% of payroll. Carrying costs for debt service, pension and
OPEB are significant at 19.1% of governmental (less capital) fund spending, but
the burden falls to a manageable 9% after adjusting for state debt service
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, Bond Counsel, and the
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