Fitch Ratings assigns an 'AA' rating to the city of Columbia, Missouri's (the city) $12,975,000 taxable special obligation improvement bonds (Build America Bonds/Direct Subsidy - Annual Appropriation Obligation), series 2009A (the bonds). The bonds are scheduled for competitive sale on Aug. 17, 2009. The bonds are special limited obligations of the city, payable from the city's annual appropriation of funds. Proceeds will finance the construction of a downtown parking garage, fund a debt service reserve, and pay costs of issuance. Fitch also affirms the 'AA' rating on the city's approximately $61.5 million in special obligation electric utility improvement bonds, series 2006C and 2008A and $50.97 million in outstanding special obligation revenue improvement bonds, series 2008B. The Rating Outlook for all the bonds is Stable.
The 'AA' ratings are based on the city's diverse economy, anchored by the University of Missouri, growing tax base, strong financial management and planning, and low debt levels, aided by significant enterprise fund support. The effects of the recent economic downturn have impacted sales tax collections, a major source of operating revenue. However, officials have implemented various cost cutting measures and general fund reserve levels are expected to remain at or above the city's state policy of 16% of spending.
Located in central Missouri along Interstate 70, the city's diverse economic base includes a mix of government, education, health care and financial services. The vibrant university community has created a highly skilled workforce - about 58% are college graduates, compared with 27% nationally - which has promoted basic and applied research and attracted considerable private business investment. While the area has not been immune from the current recession, city unemployment rates remain well below state and national averages. Population continues to grow, with the city reportedly topping 100,000 residents in 2009. The below average wealth indicators reflect the large student presence; over 42,000 students are enrolled at the area's three institutions of higher learning including the flagship campus of the University of Missouri. Including higher education and governmental property, about one-fourth of the city's land area is tax-exempt. Nonetheless, taxable values have also recorded steady growth, with a 6.6% gain posted in the most recent year, with a more modest increase of just over 1% anticipated for the coming year. Housing data points to below average foreclosures and delinquencies for the area.
The combination of steady economic gains and superior fiscal stewardship has produced solid financial results. As much of the land area is exempt from property taxation, the city uses sales taxes to capture historically strong retail activity. The city's 1% general sales tax represents about 25% of operating revenues and transfers in (which includes payments-in-lieu of taxes from the water and electric utility). Although sales tax collections were flat in fiscal 2008, the general fund recorded a $6.1 million operating surplus, contributing to an unreserved, undesignated general fund balance of nearly $15 million, or 21.5% of expenditures and transfers out, well above the 16% policy goal. The economic slowdown is projected to result in a 3% decline in sales tax collections in fiscal 2009, while expenditure controls are expected to result in a modest decline in reserve levels but remain above the policy goal. The proposed 2010 budget includes flat sales tax collections as well as some program reductions and minor employee benefit cuts. While the city is expected to experience some financial pressures in the coming years, management has demonstrated a willingness to reduce expenses in order to maintain adequate general fund balances consistent with the current rating level.
The city's direct debt profile is modest, aided by substantial enterprise fund support for its special obligation bonds. The city has no general obligation bonds outstanding. Overall debt ratios climb to moderate levels. Debt amortization is below average. The city is expected to be in the market within the next several weeks with about $28 million of utility supported revenue or special obligations bonds. Near-term borrowing plans appear to be relatively small.
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