Fitch Ratings assigns an 'AA+' rating to the following bonds of the city of Norfolk, Virginia (the city):
--$134.5 million general obligation (GO) refunding bonds, series 2010G.
The bonds are scheduled to sell on a negotiated basis Sept. 15.
In addition, Fitch affirms the following ratings:
--$873.5 million GO bonds at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Norfolk's maritime assets, including the
world's largest naval stations and an active deepwater harbor, lend
economic stability to the city and region. Commercial development, which
has slowed somewhat in response to current economic conditions, should
continue to diversify the economy and help offset the sizable proportion
of tax-exempt property.
--The heavy presence of military personnel
contributes to lower per capita income levels.
--Well-managed
financial operations and adherence to prudent policies have resulted in
solid reserves.
--A concerted effort to reduce capital expenditures
has enabled the city to maintain its moderate debt burden.
KEY RATING DRIVER:
Norfolk is expected to maintain stable financial
results despite softening revenues and slowed tax base growth, in part
attributable to delays in a few major economic development projects
reportedly resulting from developers' reduced access to the capital
markets.
SECURITY:
The bonds are secured by the city's full faith and credit
and unlimited ad valorem taxing power.
CREDIT SUMMARY:
The city, with an estimated 2009 population of
approximately 233,330, is located in the Hampton Roads region of
Virginia, adjacent to the Atlantic Ocean. Home to the world's largest
naval complexes and natural deep-water harbors, the city's economic
activity and employment base are concentrated in defense-related
activities. Over the past several years, significant retail, commercial,
and tourism activity has enhanced the city's economic diversity. While
the military has historically provided a stabilizing presence in the
economy, it does leave the city vulnerable to military reorganizations
and downsizing. The Secretary of Defense recently announced plans to
close the U.S. Joint Forces Command (JFCOM), which is headquartered in
Norfolk. While the impact of the potential closing is not definite, the
city estimates 1,000 JFCOM employees are in Norfolk, equal to roughly 1%
of the city's employment base. The city's unemployment rate of 9.9% for
July 2010 is above the state's average of 7.1%, but in line with the
national average of 9.7%. The sizeable military presence results in
wealth levels ranging from 68%-85% below state and national levels.
Financial operations are sound. After moderate drawdowns in fiscal 2008 and 2009, driven by use of revenues for one-time capital needs as well as the economic downturn in fiscal 2009, the unreserved fund balance remains healthy at $50.8 million, equal to 8.5% of spending. Preliminary fiscal 2010 results indicate the city achieved an operating surplus, adding to fund balance. The fiscal 2011 budget is balanced including a 4.8% reduction in both revenues and expenditures.
Debt levels are moderate, with overall debt equal to about 2.3% of assessed value and roughly $2,909 per capita. Amortization of outstanding debt is above average with over 60% of principal retiring within 10 years. The capital improvement plan (CIP) for fiscal years 2011-2015 totals approximately $640.5 million, emblematic of the city's success in reducing planned capital spending from the high $723 million included in the fiscal 2007-2011 CIP. Utilities account for roughly 35% of needs while schools make up 13%. The city issues bonds on a cash flow basis and plans to have an additional GO issuance sometime next calendar year.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc. and IHS Global Insight.
Related Research:
'Tax-Supported Rating Criteria', dated 16 Aug.
2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated
21 Dec. 2009.
Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S.
Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470
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