Fitch Ratings has assigned an 'AA-' rating to the city of Johnson City, Tennessee's approximately $47.5 million of general obligation (GO) refunding bonds, series 2009. The bonds are scheduled to price the week of June 22, 2009 with proceeds refunding three series of the city's outstanding variable-rate bonds. In addition, Fitch affirms the 'AA-' rating on approximately $60.2 million of outstanding bonds issued through 2008 that are secured by a GO of the city. The Rating Outlook is Stable.
The 'AA-' rating reflects Johnson City's ample financial flexibility, moderately high debt levels, and relatively well-performing economy. Conservative budgeting practices have contributed to the city's strong general fund balances, and the stability provided by several prominent healthcare and higher education institutions benefits the local employment base. A key rating driver is the continued management of the city's unhedged variable-rate debt to minimize any potential budgetary pressure, given recent credit and bond market turbulence.
Johnson City is located principally in Washington County in the northeastern corner of Tennessee. The city's large, expanding education and health services industry anchors the local economy and has mitigated recent declines in other parts of the employment base. Despite registering an elevated 7.7% in April 2009, the city's unemployment rate increased by less than the state and national rates over the past year and remains below-average, as it has historically. Mountain States Health Alliance (revenue bonds rated 'BBB' with a Stable Outlook by Fitch), which serves 28 counties in the surrounding area, is based in the city and is its largest employer (3,541 employees). East Tennessee State University (ETSU) is also located there (1,990 employees); ETSU opened its new College of Pharmacy in 2007. A Veterans Administration hospital, modernized with nearly $100 million of capital improvements this decade, is located near the university, and the new $36 million Niswonger Children's Hospital opened in early 2009. Per capita money income levels are on par with the state and 88.2% of the national level.
Fiscal 2008 ended with a $2.8 million general fund surplus, which brought the unreserved general fund balance to $20.5 million, or a high 27% of spending. The city has nearly doubled the size of its reserve levels (relative to spending) over the past four years, positioning it well for challenging budget years in fiscal 2010 and beyond. Officials expect to end fiscal 2009 with approximately a $2.8 million draw on general fund balances, due to an increase in pay-as-you-go capital. However, reserve levels should remain strong. Fiscal 2010 general fund expenditures are likely to grow by a negligible amount over fiscal 2009 budgeted levels to offset expected weakness in major revenue sources, including local option sales taxes.
The city's overall net debt ratios are moderately high at $3,931 per capita, or 5% of market value, and amortization is rapid at 73% within 10 years. After this transaction, unhedged variable-rate debt will fall to just 12% of the city's total outstanding debt from approximately 36% last year, easing Fitch's concerns about the budgetary implications of ongoing market disruptions. Furthermore, officials' conservative approach to budgeting the city's variable-rate debt costs continues to yield budgetary savings. The city's other post-employment benefit liability is manageable, and officials have begun funding a portion of the annual required contribution; the creation of an irrevocable OPEB trust fund is planned. The city makes its annual required pension costs.
The following bonds were assigned an 'AA-' rating on July 9, 2008. However, the ratings were not reflected on Fitch's web site at www.fitchratings.com:
--GO public improvement refunding bonds, series 1998;
--Water & sewer revenue & tax refunding bonds, series 1998;
--Water & sewer revenue & tax refunding bonds, series 2004A;
--Water & sewer revenue & tax refunding bonds, series 2006.
With this affirmation, the full rating history is now available.
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
Ryan A. Greene, +1-212-908-0315
Ann
Flynn, +1-212-908-9152
Cindy Stoller, +1-212-908-0526 (Media
Relations)
cindy.stoller@fitchratings.com