Fitch Ratings assigns an 'AA-' rating to Rio Rancho, NM's (the city) $25 million general obligation (GO) bonds, series 2009, scheduled to sell competitively on April 22. Fitch also affirms its 'AA-' rating on the city's $11.1 million outstanding GO bonds. The Rating Outlook is Stable.
The bonds are payable from an unlimited property tax levy. Proceeds of the bonds will be used for street improvement projects and paying costs of issuance.
The rating reflects the city's historically large but thinning financial reserves, positive debt profile, growing property tax base, and above average wealth levels, The city relies on economically sensitive gross receipt taxes (GRTs) for operating support. After benefitting from a recent housing boom, the current steep contraction in home building activity has significantly impacted the local construction sector, the city's largest source of GRTs. Conversely, retail GRTs have remained stable and numerous high value commercial projects underway or planned should enable continued stability in these revenues. Nonetheless, total GRTs are projected to decline for the second consecutive year, causing the city's fund balance to fall to 17% of spending in fiscal 2009. Additionally, the proposed fiscal 2010 budget projects a modest operating deficit, making restoration of the city's reserves a multi-year process. Given the prominence of GRT revenues, additional declines in fund balance levels beyond those projected may result in negative rating action.
Rio Rancho, just north and west of Albuquerque, is relatively new, having begun as a development in the mid-1960s. The city, reportedly the fastest growing in the state, is now the third largest in New Mexico and among the fastest growing in the nation. The 2009 estimated population of almost 80,000 is up 54% since the 2000 census.
The city's rapid population growth was fueled by an abundance of affordable housing and the subsequent relocation of high-tech companies to Rio Rancho, led by Intel, the city's largest employer with 4,600 permanent and contract employees. After laying off 1,000 workers in 2008 due to the phase out an obsolete chip plant, Intel has announced its plans to build a new $2.5 billion chip plant, bringing 1,500 construction jobs. With the ongoing expansion of its high-tech base, about one-third of Rio Rancho residents are employed in the manufacturing sector. Unemployment rates have risen but remain below state and national averages, equaling 5.6% in February 2009.
After peaking at over 3,000 single family building permits in 2006, permits have fallen to pre-housing boom levels in 2009 and are projected to remain at about 600 - 700 per year. However, non-residential construction remains steady due to several major higher education and healthcare projects. Scheduled to open in spring 2010, the University of New Mexico (UNM) and the Central New Mexico Community College are each building new campuses. Also, UNM plans to build a teaching hospital on its Rio Rancho campus. Finally, Hewlett Packard is building a $64 million customer service and technical support center, adding at least 1,350 jobs upon its opening in late 2009.
After posting financial reserves as large as 50% of spending in recent years, the city's fund balance thinned in fiscal 2007 and 2008, due to large pay-go capital projects and a 15% decline in GRT revenues, respectively. Fiscal 2008 reserves still totaled a solid $13.8 million or 25% of spending. Despite mid-year budget reductions, fiscal 2009 is projected to further reduce reserves by $4.9 million due to an estimated 11% drop in GRTs, resulting in about a 17% fund balance. The proposed fiscal 2010 budget represents a notable 6% reduction in expenditure levels but also includes another drawdown, totaling a modest $1.9 million. In light of ongoing commercial projects, the proposed budget is based on renewed GRT growth of 3% and assumes the city's new arena, under new management, will no longer require debt service subsidies of about $2 million annually.
Direct debt levels are modest, benefiting from historically substantial pay-as-you-go financing as well as impact fee funding, and developer contributions. In fiscal 2006, over $12 million was transferred to capital projects from the general fund. Overall debt ratios are moderate, primarily reflecting issuance by the area school district. Payout is rapid, with all GO bonds repaid within 12 years. The current offering was approved by 54% of voters in March 2009.
The city's declining GO bond debt structure incorporates future issuances of approximately $11 million, pending voter support, every two years, without impact to the current debt service mill rate. The city's five-year capital plan totals a large $640 million, although it's mostly funded by state and federal grants and water and sewer system revenues. The major capital needs of the city remain water (water and sewer revenue bonds rated 'A+' Stable Outlook by Fitch Ratings) and streets and roads.
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