Fitch Rates Matanuska-Susitna Borough, AK's GOs 'AA'; Outlook Stable
SAN FRANCISCO--()--Fitch Ratings assigns an 'AA' rating to the following Matanuska-Susitna Borough, Alaska (the borough) general obligation (GO) bonds:
--$88.6 million GO school bonds, 2012 series A;
--$8.8 million GO school refunding bonds, 2012 series B;
--$5.6 million GO port refunding bonds, 2012 series C.
The bonds are scheduled to be sold via negotiation on or about the week of March 15.
In addition, Fitch affirms the following ratings:
--$171.8 million outstanding GO bonds at 'AA'.
The Rating Outlook is Stable.
General obligations of the borough under a full faith and credit pledge. 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: Matanuska-Susitna Borough's financial performance is strong, benefiting from sound fiscal policies and ample reserves that grew throughout the national economic downturn. The borough's unrestricted general fund balance was a robust 60.6% of expenditures at the end of fiscal 2011.
LIMITED POPULATION AND ECONOMY: The borough's economy is inherently constrained by a relatively small population base and the seasonality of local economic activity. The economy has gradually expanded and diversified, slowly reducing this concern, but it remains the key factor limiting the rating.
MILD RECESSION: The local unemployment rate remained cyclically elevated in 2011, averaging 8.8%. However, job creation, population growth and assessed value (AV) gains continued throughout the recession, in marked contrast to most of the nation.
STRONG DEBT PROFILE: The debt burden is low at $1,254 per capita, or 1.2% of market value after netting debt supported by the state of Alaska. The district's debt amortizes rapidly with two-thirds of debt amortizing in 10 years and 100% in 20 years.
The borough's general fund balance grew annually between fiscal years 2006 and 2011. Fiscal 2011 ended with an unrestricted general fund balance of $65 million, up 13% from an unreserved fund balance of $56.6 million the year prior. The comparison is somewhat distorted by a change in accounting standards, but the general trend of large and growing unrestricted fund balances is clear. The borough projects that the unrestricted general fund balance will approximate the current level at the end of fiscal 2012. 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 of the borough's budgeted operating expenditures (excluding the school district). Despite rising general fund expenditures, the borough has consistently kept expenditures below expected revenues. Growth of property tax revenues, which account for about two-thirds of receipts, slowed with the national housing downturn and recession, but continued to grow each year during the downturn amid gradual increases in AV. Total general fund revenues increased a healthy 4% in fiscal 2011 after an anemic 0.5% increase in 2010.
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. It 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.
Like other Alaska communities, the borough experienced a relatively muted version of the national economic downturn. Recent economic indicators show slow recovery from a relatively mild recession. The jobless rate declined to 8.8% in 2011 from 9.1% in 2010. Both numbers are slightly below the national average. Over a longer period, the local unemployment rate has trended higher than the state and the nation. 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 mixed with median household income robust at 128% of the national level and per capita money income at just 92% of the national average.
The tax base has grown consistently over many years, but growth slowed due to the recession. Taxable AV increased 2.1% in fiscal 2012 to $8.4 billion, an improvement from growth of less than 2% in 2010 and 2011. The tax base's performance compares favorably to 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. New residential and commercial construction continues to gradually boost AV with construction increasing significantly in 2011 from 2010. Taxpayer concentration is not a concern with the top 10 payers representing 4.3% of AV and a healthy variety of retail, health care, tourism, utility and energy related concerns.
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 $2,924 per capita or 2.9% of AV 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 very low $1,254 per capita, or 1.2% of taxable AV after taking state debt reimbursement for eligible bonds into account. Debt amortization is above average with all bonds repaid in 20 years. Pension obligations 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.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors, Underwriter, and Bond Counsel.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Posted: March 6, 2012