Fitch Ratings assigns 'AA+' ratings to the following Louisville-Jefferson County Metro Government (Metro Government), Kentucky's general obligation (GO) bond issues:
--Approximately $45 million GO series 2009E;
--Approximately $62 million GO series 2009F (taxable).
The bonds are scheduled for competitive sale on Nov. 4, 2009, and are direct GOs of the Metro Government, payable from taxes levied on all taxable property of the government without limitation as to rate or amount. Series 2009E bonds will refinance outstanding bond anticipation notes; series 2009F bonds are qualified recovery zone bonds, benefitting from a 45% interest rate subsidy from the federal government. In addition, Fitch affirms the 'AA+' rating on Metro Government's approximately $209 million in outstanding GO unlimited tax bonds. The Rating Outlook is Stable.
The 'AA+' rating reflects the Metro Government's general credit strengths, including favorable, though recently pressured financial position; low debt levels, as the government finances many capital projects through operating sources; and limited borrowing needs. The local economy is diverse, although exposure to automobile manufacturing poses some credit risk. However, the broadening of the economy, which includes sizable health care, government, transportation, and service components, lessens the potential impact of the auto industry restructuring. Area unemployment rates have increased significantly and are likely to remain high in the near-term; however, growth in professional and business service sector jobs is expected to help offset declines in manufacturing. Fiscal balances remain adequate, but Fitch expects the Metro Government's finances will continue to be stressed over the next two years by reduced growth in the occupational tax, the government's largest revenue source, and expenditure increases related to public safety and pension increases. Nonetheless, management has demonstrated its willingness to align spending with available revenues and has implemented significant spending cuts in the current and succeeding fiscal years. Continued high unemployment and/or financial deterioration below current undesignated general fund levels pose some credit concern.
Following voter approval in 2000, the city of Louisville and Jefferson County merged in January 2003 to form the combined Metro Government and to replace the city and county governments. The Metro Government area, with a combined population of over 700,000, is the largest and wealthiest in the state. Taxable values have shown steady gains, increasing on average 5% annually since 2003, but growth in the tax base has slowed and may be flat in the next several years. Economic diversification is evident, both in terms of Metro Government's largest employers and top 10 taxpayers. Ford Motor Co. maintains two plants in Louisville employing 5,000, down from about 9,000 five years ago; at this time, officials report no major changes in operations at Ford. Reflecting reduced work shifts in manufacturing enterprises, recent local unemployment rates have spiked from the same period last year and equal 10.6% in August 2009, above the U.S. rate of 9.6% in the same month.
Financial results have been positive since 2003 due to steady economic gains and spending restraint as the city and county merged and sought operating efficiencies, including staffing reductions. In the fiscal year ended June 30, 2009, however, cash receipts from occupational taxes declined by an estimated 2.4% compared to 2008 actual results, or 5.5% below budgeted expectations. In total, revenue declines were a modest 1.2%, but growth in personnel spending as well as costs related to wind and ice storms offset the government's spending cuts. Fiscal 2009 is expected to end with a modest general fund shortfall. Fiscal 2010 will also be a tough year for the metro government as the budget projects 4.6% declines in occupational taxes (net of debt service obligations) and slight growth in other revenues; the outcome of bargaining unit negotiations will be important for the government's fiscal position. The metro government's ability to maintain balances consistent with its past levels of about $65 million in undesignated general fund balance is a key credit consideration.
The Metro Government's manageable capital improvement plan equals $791 million through 2013, with the majority funded through internal sources and state and federal grants. The combined government's direct debt, totals about $412 million, or $577 per capita and 0.6% of estimated market value. Approximately 70% of the GO debt is repaid in 10 years.
Additional information is available at 'www.fitchratings.com'.
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Contacts:
Fitch Ratings
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Ann
Flynn, 212-908-9152, New York
or
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Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
