Fitch Affirms Fairbanks North Star Boro, Alaska's GOs at 'AA-'; Outlook StableNEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Fairbanks North Star Boro, Alaska's (the borough) general obligation (GO) bonds as part of its continuous surveillance effort:
--Approximately $109 million GO bonds issued in 2008 and earlier, affirmed at 'AA-'.
The Rating Outlook is Stable.
--The borough has very low debt levels with rapid amortization and a high 70% of debt service is supported by the state through statutorily required reimbursement.
--The somewhat limited, though diversifying, economy is heavily driven by natural resources and a large government, educational and military presence.
--A strong management team that has maintained the borough's solid financial position and history of adequate reserve levels.
--The borough's taxpayer concentration is above-average, but its tax base has experienced continuous growth over the last 10 years.
--The presence of national military bases, which have undergone recent development and continued support from the federal government, has been a benefit to the economy.
KEY RATING DRIVERS:
--Maintenance of adequate reserve fund levels in order to preserve financial flexibility consistent with this rating category.
--The continued presence and stability of the military bases and the state's commitment to reimbursing a portion of school construction debt.
The bonds are a general obligation of the borough supported by a covenant to levy taxes annually without limitation.
The borough is located in central Alaska and is the hub of trade, commerce and government for the interior and northern areas of the state. The borough consists of two cities, Fairbanks and the North Pole. Two sizable military bases, Fort Wainwright and Eielson Air Force Base, provide stability to the economy as does the main University of Alaska campus, serving over 9,000 students. Offsetting these stabilizing factors is the borough's reliance on its natural resource base and related infrastructure as the top three taxpayers comprising 12% of the tax base are oil and mining related companies. The top 10 taxpayers make up a high 16.3% of taxable assessed value. The borough's population is 97,970 and has grown 17.5% since 1999. Unemployment within the borough's metropolitan statistical area is 8.7%, just above the state rate of 8.6%, but still below the national rate of 9.7%. Income levels are slightly above the state and continue to exceed the national average.
The borough continues to maintain a strong financial position even after moderate drawdowns in its general fund reserves. The fiscal 2009 unreserved fund balance totaled $22.5 million or a strong 22.8% of spending, exceeding the policy minimum of 7%, and borough officials expect surplus operations in fiscal 2010. Management is planning a 3.1% tax rate increase for fiscal 2011, the first since 2001, to offset the decrease in state aid for education due to the borough's increase in assessed value and a projected decrease in investment returns. Property tax revenues represent approximately 80% of general fund revenues. Similar to other boroughs in Alaska, tax receipts (including alcohol, hotel and other taxes) are capped by an inflation-based formula, adjusted for new services, as well as new construction and property improvements. Voter-approved debt service is not subject to the cap. Supporting the increase in tax revenues over the years is the borough's strong growth in assessed value, which has averaged 8.6% annually from 2004-2010 due to new construction and renovations.
The borough only has GO debt outstanding and all GO debt is subject to voter approval. All of the borough's GO debt is eligible for up to 70% reimbursement of debt service from the state, subject to state appropriation. Overall debt ratios are low before reimbursement with debt per capita at $1,518 and debt to market value at 2% and $531 and 0.7% after state reimbursement. The amortization rate is very rapid with 82% of principal maturing in 10 years.
Applicable criteria available on Fitch's website at www.fitchratings.com:
'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.
'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.
Additional information is available at www.fitchratings.com.
Posted: May 13, 2010
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