Fitch Ratings assigns an ''AA'' rating to the City of Charlotte, North Carolina''s (the city) approximately $144.4 million refunding certificates of participation (Cultural Arts Facilities), series 2009E. The certificates of participation (COPs) are expected to price on Sept. 15, 2009 via negotiation, with proceeds to refund all of the city''s outstanding commercial paper COPs (Cultural Arts Facilities), series 2007A, and to finance improvements to several major cultural arts facilities as part of the city''s cultural master plan.
In addition, Fitch affirms the following outstanding ratings for the city:
--General obligation (GO) bonds at ''AAA'';
--COPs (convention facility) at ''AA'';
--COPs (government facilities) issued to finance the uptown arena at ''AA'';
--COPs (NASCAR Hall of Fame facilities) at ''AA'';
--COPs (Charlotte/Mecklenburg Law Enforcement Center Project) at ''AA''.
The Rating Outlook for the bonds and COPs is Stable.
The ''AA'' rating on the COPs reflects the sound legal provisions of the transaction, the fact that mortgaged assets are non-essential to city operations, and the credit strengths that result in Charlotte''s ''AAA'' GO rating. The city''s broad, diverse economy shows excellent long-term prospects for continued expansion in spite of some near-term weakening in employment and jobless statistics. Excellent financial management and policies ensure ample operating flexibility and position the city well as it faces weakening in some economically sensitive revenue streams. Overall debt levels are above average and likely to increase given the capital needs of the city and Mecklenburg County (the county), especially for Charlotte-Mecklenburg Schools, but should remain affordable.
The COPs represent undivided interests of the New Charlotte Corporation (the corporation), a nonprofit corporation made up of city officials, to receive installment payments from the city equal to debt service. The city''s payments are subject to annual appropriation. As additional security for the city''s obligations, a deed of trust grants a first lien for the benefit of the corporation on the site of the Discovery Place (an interactive science museum), the Discovery Place parking facility, improvements at Discovery Place funded by the 2009E COPs, as well a the city''s property rights in the Harvey B. Gantt Center. The value of the mortgaged assets exceeds 50% of the par amount of COPs. However, the mortgaged assets are not essential to the city''s operations and, therefore, provide only a moderate amount of security.
Although not pledged to repayment of the COPs, three dedicated revenue sources are expected to be transferred to the city''s cultural arts fund to provide coverage for the installment payments. The dedicated revenues include a transfer from the county''s general fund, a transfer from the city''s general fund, and general fund monies now available as a result of an increase in the rental car tax. Beginning in January 2007, the county imposed an additional 4% tax on all rental car transactions, with revenues to be used solely for funding local public transportation needs. As a result of this increase, monies that were previously used to fund local public transportation expenditures in the city''s general fund are now available to fund other purposes; the city intends to transfer these freed up revenues to the cultural arts fund to pay installment payments pursuant to the contract. Although there is a risk that the cultural arts fund will not always adequately cover debt service, Fitch believes that the city has enough financial flexibility in its roughly $490 million general fund to subsidize installment payments if the cultural arts fund falls short. Additionally, the cultural arts fund had an estimated $15.8 million fund balance at the close of fiscal 2009.
Located in the Piedmont region of North Carolina, Charlotte is the largest city in the state and includes 75% of the county''s population. The city''s population grew by a strong 36.7% during the 1990s and an estimated 24% since the 2000 census. In addition to in-migration, periodic annexations contribute to population and tax base growth. Per capita personal income levels in the county are well above state (by 37%) and national (21%) averages. The city''s unemployment rate remains below the state average but grew considerably to 9.3% in March 2009 from 4.2% one year earlier. The area is adjusting to job losses related to the stressed local banking industry where Wachovia Corp. was headquartered. Diversity in major employers should help soften the loss of banking jobs. Major employers include the Carolinas Health Care System, Duke Energy, and the county school district.
The city''s financial position and management are very strong. Management has instituted policies to maintain solid reserves and requires that the undesignated general fund balance equal at least 16% of the following year''s budget, twice the state-recommended level of 8%. Fiscal 2008 was the sixth consecutive year of positive general fund operations. The $2.3 million surplus bolstered the total general fund balance to $149 million at the close of fiscal 2008. The unreserved portion of the fund balance, when added to the reserve required by state statute, equals 26.7% of expenditures, transfers out, and other uses. Additional reserves are available in the city''s debt service fund. Fiscal 2009 revenues in the general fund are slightly below budget, but officials reduced spending accordingly and expect to close out the year with a small operating surplus. The fiscal 2010 budget is conservatively balanced without an increase to the property tax rate. The budget incorporates further reductions to city expenditures and also contains a small reserve to provide flexibility in light of potentially weakening revenues and unforeseen expenses.
(For additional information, see Fitch''s New Issue Report dated June 9, 2009.)
Fitch''s rating definitions and the terms of use of such ratings are available on the agency''s public site, ''www.fitchratings.com''. Published ratings, criteria and methodologies are available from this site, at all times. Fitch''s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ''Code of Conduct'' section of this site.
Contacts:
Fitch Ratings, New York
Alexandra Knight, 212-908-9181
Barbara
Ruth Rosenberg, 212-908-0731
or
Media Relations:
Kevin
Duignan, 212-908-0630
Email: kevin.duignan@fitchratings.com
Sandro
Scenga, 212-908-0278
Email: sandro.scenga@fitchratings.com