Fitch Rates Louisville-Jefferson County Metro Gov., KY GOs 'AAA' & BANs 'F1+'; Outlook Stable
Fitch Ratings has assigned the following ratings to Louisville-Jefferson
County Metro Government, KY (the Metro Government) obligations:
--Approximately $86.4 million tax-exempt general obligation (GO) bond
anticipation notes (BANs) (center city project) series 2015A at 'F1+';
--Approximately $23.2 million taxable GO bonds (center city project)
series 2015B at 'AAA'.
Proceeds will finance the Metro Government's share of project costs
relating to the development of the city center project. Bonds and notes
are expected to sell via competition Dec. 8.
In addition, Fitch has affirmed the following ratings:
--Approximately $337.5 million unlimited tax general obligation (ULTGO)
bonds at 'AAA'(specific series detailed at the end of this release);
--Approximately $42.8 million lease revenue refunding bonds, series
2007A, issued by the Jefferson County Capital Projects Corp., KY, at
The Rating Outlook on the long term ratings is Stable.
The GO bonds and BANs are supported by the metro government's full faith
and credit and its ad valorem taxing power, without limitation as to
rate or amount. The lease bonds are payable solely from annual rentals
paid by the metro government, subject to annual appropriation.
Bondholders have a leasehold interest in a judicial and correctional
facility located in downtown Louisville.
KEY RATING DRIVERS
RESILIENT LOCAL ECONOMY: The overall depth and diversity of the local
economy is underscored by steadily growing employment levels which
contribute to solid socioeconomic characteristics.
STABLE FINANCIAL POSITION: The metro government has shown balanced
operations and maintained satisfactory unreserved balances in recent
FAVORABLE DEBT POSITION: The debt burden is modest and amortization is
rapid. Small annual transfers for pay-go capital contribute to limited
future borrowing plans.
RATING DISTINCTION FOR LEASE REVENUE BONDS: The one-notch rating
distinction between the GO and the lease revenue bonds reflects the
annual appropriation risk and the essential nature of the leased asset.
STRONG MARKET ACCESS: The 'F1+' rating on the BANs reflects Fitch's
expectation that the metro government's strong credit quality would
afford favorable market access for the already authorized long-term
bonds which will provide ultimate financing for the BANs.
STABLE FINANCIAL POSITION: Inability to maintain structural balance and
satisfactory reserve levels could pressure the ratings.
The city of Louisville and Jefferson County merged in January 2003 to
form the combined metro government, replacing the former city and county
governments. The metro government area, with a combined population of
over 750,000, is the largest and wealthiest local government in the
RESILIENT LOCAL ECONOMY
Population gains and the relatively stable economic picture contributed
to steady growth in property values over the past decade. Taxable value
stagnated during the recent economic downturn. Taxable value returned to
growth of 0.9% in 2012 and 5.4% in 2014 before dipping 2.2% in 2015.
Strong permit and development activity is expected to support continued
steady tax base growth.
United Parcel Service Inc. serves as the area's leading employer with
over 20,000 employees. The health care, higher education and government
sectors account for most of the remaining top employers in the diverse
local economy. The manufacturing sector is also prominent, accounting
for a greater percentage of total employment than the national average,
which may have contributed to the elevated unemployment rate during the
Unemployment rates have dropped to a low 4.4% in August 2015 from peaks
of 10% over the past few years. The August 2015 rate is now slightly
below the state (4.9%) and national (5.2%) rates.
STABLE RESERVE LEVELS
Financial performance has generally been stable, with balanced general
fund operations recorded in recent years. Unrestricted general fund
balance has remained solidly within the range of 10%-15% of spending,
with 12.7% recorded in fiscal year (FY) 2014. Management projects
another modest net general fund operating surplus and similar reserve
levels for FY2015. The FY2016 budget includes a small fund balance
appropriation of $450 thousand. Fitch expects continued structural
budget balance given management's conservative close controls, and
positive economic trends.
The metro government's revenue stream is highly reliant upon the mildly
economically sensitive occupational tax, which amounts to approximately
56.2% of 2014 general fund revenues. Occupational tax receipts had fully
recovered from recessionary declines by FY2012 and increased a strong
6.6% in FY2013 and 2.9% in FY2014. Employee withholdings, which comprise
the majority of occupational taxes, are reported to be up 6% in FY2015.
Property taxes are the second largest source of revenue, accounting for
roughly 23% of general fund revenues. A 4.6% increase in assessed value
for FY2016 triggered a tax rate rollback, consistent with the 4% growth
cap on existing real property. A new 2% franchise fee levied on all
natural gas sales was budgeted to raise $3.6 million in FY2015 to offset
increased public safety spending.
A proposal for a local-option sales tax to fund capital is scheduled to
be considered by the state legislature in 2016. This new revenue stream
would require a state-wide constitutional amendment in order to be
adopted and also would require voter-approval.
FAVORABLE DEBT POSITION
Overall debt burden remains low at $1,092 per capita and 1.0% of market
value. Amortization is rapid with 77% of principal retired within 10
years, excluding the BANs.
The current issues will fund the metro government's share of costs
relating to the center city project, which includes the construction of
a 600 room hotel, 225 rental apartment units, grocery and retail stores,
public infrastructure including parking and amenities. Officials expect
to receive significant support from incremental tax revenues; however,
the rating is based upon the metro government's ULTGO pledge. Planned
future borrowing includes approximately $20 million-$30 million for
equipment and general capital in 2017.
Most of the metro government's employees participate in the County
Employees' Retirement System (CERS), a state-wide cost-sharing
multi-employer plan. CERS's funded level is low at 59.8% and 62.6% for
hazardous and non-hazardous duty employees, respectively. A smaller
number of public safety employees participate in two single-employer
(SE) plans, held over from before the merger of governments. The SE
plans combine for a weak approximately 39.7% funding level in 2014, or
an estimated 37.7% when adjusted by Fitch to reflect a 7% discount rate.
The unfunded actuarially accrued liability for both plans is de minimis.
The metro government meets its actuarially determined annual required
contribution each year.
Other post-employment benefit (OPEB) costs are limited to a defined
monthly stipend for retiree health care and no unfunded liability is
recorded. Carrying costs for debt service, pension and OPEB amount to a
manageable 19% of total governmental spending.
CONTINGENT LIABILITY NOT A BUDGET PRESSURE
In 2008, the metro government agreed to pay up to $309 million on behalf
of the Louisville Arena Authority to repay debt issued for the arena
project. The agreement includes annual minimum and maximum payments of
$6.5 million and $10.8 million which vary through 2039. Management has
consistently included and made required payments in annual budgets
including the current year maximum of $9.8 million in FY2016. Fitch does
not expect the arena payments to impact annual budgetary balance.
Fitch affirms the 'AAA' ratings on the following series of metro
government ULTGO bonds:
--GO bonds series 2006A;
--GO refunding bonds series 2009A;
--GO refunding bonds series 2009B;
--GO refunding bonds series 2009C (taxable);
--GO refunding bonds series 2009D (AMT);
--GO bonds series 2009E;
--GO bonds series 2009F (taxable);
--GO bonds series 2010;
--GO bonds (taxable QECB-direct pay) series 2010C;
--GO refunding bonds series 2010D;
--GO refunding bonds (taxable) series 2010E;
--GO bonds series 2013A;
--GO refunding bonds series 2013B;
--GO refunding bonds (taxable) series 2013C;
--GO refunding bonds series 2013D;
--GO bonds series 2014D;
--GO notes series 2014E;
--GO refunding bonds series 2014F;
--GO bonds series 2015A;
--GO bonds (taxable) series 2015B.
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to less than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.
In addition to the sources of information identified in the applicable
criteria specified below, this action was informed by information from
CreditScope, IHS Global Insight, and Zillow Group.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Rating U.S. Public Finance Short-Term Debt (pub. 17 Nov 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form
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