Fitch Ratings assigns an 'AAA' rating to the Indianapolis Local Public Improvement Bond Bank, Indiana's (Bond Bank) approximately $69,055,000 refunding bonds, series 2007D, which are scheduled to price as early as April 23 through an underwriting led by Morgan Stanley & Co. Incorporated. The bonds are limited obligations of the Bond Bank payable solely from revenues and funds pledged by the trust estate established under the indenture. The series 2007D bonds will forward refund the Bond Bank's series 1998A refunding bonds.
The 'AAA' rating reflects the strength of the qualified obligations pledged under the indenture. These obligations to the bond bank consist of general obligation pledges from four special purpose districts within the City of Indianapolis-Marion County consolidated government, which separately are rated 'AAA' by Fitch. The City-County Council of Indianapolis and Marion County serves as the governing body for the combined government, which has a diversified economy, generally steady financial performance, and manageable, although growing, debt burden. Although the combined government maintains a strong financial position and has incorporated a number of financial reforms to promote service efficiency and accountability, discretionary general purpose reserves have declined modestly in the last five years. The government has increased own-source revenues, such as the county option income tax, but statewide tax limitations without modification could limit financial flexibility and debt issuance over the next few years. The government's unfunded pension obligation for pre-1977 police and firefighter retirement plans approximates $450 million and represents a long-standing financial challenge for the government.
The bonds are limited obligations of the Bond Bank payable solely from revenues and funds pledged by the trust estate established under the indenture. The Bond Bank has no taxing power and, under Indiana law, is empowered to buy and sell securities of 'qualified entities' such as the City of Indianapolis, Marion County, all special taxing districts in the combined government, and all entities with tax levies reviewed by the City-County Council. The Bond Bank achieves its objective of lowering borrowing costs by issuing bonds and notes and purchasing the debt obligations of these qualified entities. As owner of the qualified obligations, the Bond Bank maintains all remedies available to security holders of the qualified entities.
The series 2007D bond issue will forward refund a portion of the Bond Bank's series 1998A refunding bonds. Under the indenture, the 2007D bonds will be secured by all principal and interest payments required of the qualified obligations, including the cash and investments held by funds (except the rebate fund) and accounts created by the indenture. The prior bonds were used to purchase the qualified obligations of the City of Indianapolis's flood control district ('AAA'), metropolitan thoroughfare district ('AAA'), park district ('AAA'), and sanitary district ('AAA'). These refunding qualified obligations include the City of Indianapolis flood control district refunding bonds, series 2007A; the metropolitan thoroughfare district refunding bonds, series 2007A; park district refunding bonds, series 2007A; and the sanitary district refunding bonds, series 2007A. The proceeds of the qualified obligations will be used to current refund all of the qualified entities' bonds, series 1993A.
The Indianapolis economy is well-diversified and grew at a slightly greater pace than the state and nation. Services remain the largest economic sector and have attained a larger significance in the last decade, primarily through growth in health care, engineering and legal services. While durable and nondurable manufacturing closely follow services in relative importance, its slower growth reflects competitive pressures and cyclical movements. Recent employment levels in Marion County have fluctuated in relation to the national recession. Employment growth exhibited renewed strength with 0.6% annual growth in January 2007 resulting in an unemployment rate of 5.2%, less than the state at 5.8% and slightly greater than the nation at 5.0%.
The combined government has a record of producing generally steady financial results because of its balanced tax base and manageable budget growth. In 2005, the government recorded a shortfall of $26.7 million in its operating budget. The unreserved general fund balance for 2005 remained strong at $125.5 million or 26.9% of expenditures and transfers out, compared with $175.4 million or 38.8% of expenditures and transfers out in 2001. The government is currently addressing its budgetary needs, primarily in relation to its large net pension obligation and public safety needs, through consolidation of services and revenue enhancements.
Overall debt, including direct, special purpose and overlapping districts, is $3,583 per capita or 7.7% of countywide property market values. However, general obligation debt levels for the respective special taxing districts are very low, including: the flood control district at $22 per capita and 0.05% of market value; the metropolitan thoroughfare district at $69 per capita and 0.15% of market value; the park district at $32 per capita and 0.07% of market value; and the sanitary district at $91 per capita and 0.19% of market value. The government may issue approximately $450 million in pension obligation bonds at the end of this year to fund its police and fire pension liability, if legislative efforts are productive.
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.
