Fitch Ratings has taken the following action on Parma, Ohio's (the city) bonds:
--Approximately $2 million unlimited tax general obligation bonds (ULTGOs) affirmed at 'AA-';
--Approximately $17 million limited tax general obligation bonds (LTGOs) affirmed at 'A+'.
The Rating Outlook is Stable.
SECURITY
The ULTGO bonds are secured by a voter approved debt service levy outside of the city's operating millage that is adjusted to pay debt service. The LTGO bonds are secured by an LTGO pledge payable from the city's operating millage (limited by Ohio law to 10 mills for all overlapping taxing units) that is also used to support general fund operations.
KEY RATING DRIVERS
STABLE FINANCIAL POSITION: General fund financial operations have strengthened, with recent operating surpluses and increasing year-end balances. The city has shown active management to align expenses with revenues that have been affected by economic slowing and recent state funding reductions.
CONCENTRATED ECONOMY AND FINANCES: The city's economy features a dependence on the automotive sector. City finances are also reliant on economically sensitive income tax revenues associated with the auto industry.
MODERATE DEBT PROFILE: City debt levels are low, debt is rapidly amortized, and future capital needs are modest. Total expenditure levels associated with debt service, pension contributions, and other post employment benefit (OPEB) payments are average.
LTGO RATING: The 'A+' rating on the LTGO bonds reflects the general credit characteristics of the city as well as the city's limited taxing capacity related to the LTGO bonds, which has diminished in recent years due to economic and financial challenges.
CREDIT PROFILE
ECONOMIC STABILIZATION BUT ONGOING AUTOMOTIVE CONCENTRATION
Parma is located in Cuyahoga County, eight miles south of downtown Cleveland. It is the seventh largest city in the state of Ohio. The local economy is primarily anchored by a General Motors (GM) stamping plant and, to a lesser extent, regional healthcare and government sectors. The GM plant employs approximately 4% of the local workforce.
Current city unemployment levels are lower than county and national levels and equal to the state level. On a year-over-year basis the city unemployment rate has declined to 7.4% (preliminary June 2012) from 8% in June 2011. Also favorably, operations at Parma's GM facility have stabilized, benefiting from transferred operations from other facilities outside of Ohio. Continued investments in the facility are expected as part of GM's plans for the next generation Chevrolet Cruze automobile.
Parma's population of about 81,000 declined by about 5% from 2000 to 2010, as compared to a county decline of 8% for the period and a 1.6% increase for state. City per capita income is close to county (93%), state (98%), and national (90%) averages, and its median household income exceeds county and state figures. The city poverty rate (7.5%) is well below state and national levels (about 14%).
IMPROVED FINANCES RELY HEAVILY ON INCOME TAX COLLECTIONS
City finances have improved in recent years, with operating surpluses in 2009 - 2011 (unaudited) following an operating deficit in 2008. The city's fiscal year coincides with the calendar year. Unreserved balances likewise have increased in recent years after a decline in 2008. The 2011 unreserved balance rose to $6.2 million (14% of spending), representing an increase from $4.4 million or 10.2% of spending in the prior year. Based on current budgetary performance, the city expects the 2012 ending balance to remain relatively unchanged.
General fund operations are primarily supported by the city's 2.5% income tax which yields over 60% of general fund revenues. Income tax revenues declined by about 9% in 2009, reflecting workforce reductions at GM, but returned to growth in the following years (2.4% in 2010 and 3.6% in 2011) as GM operations stabilized.
The city is expecting strong growth of about 3.6% in income tax collections for 2012, which will help offset expected declines in property tax collections (down 3.5%) and reductions in state aid. Overall, total 2012 general fund revenues are expected to grow by less than 1%. Although recent auto sector stabilization is a positive factor for the city finances, the dependence on income tax revenues related to the automotive industry remains a credit concern.
The city has been able to align expenditures with revenues negatively affected by the economy and recent state funding cuts through reductions in spending. These have included the implementation of furlough days for the past three years. For 2012, the city saw a state funding cut of about $1.8 million and expects an additional reduction of about $2.1 million for 2013. Continued active response to revenue declines and the maintenance of adequate financial reserves over the near term will be important to maintaining the current rating.
ASSESSED VALUE DECLINES CONTINUE
Due to economic slowing, the city's tax base has deteriorated in recent years. However, property taxes only account for about 7.5% of general fund revenues, somewhat mitigating the declining values. Assessed value decreased by about 10% in 2010 (the city's fiscal year coincides with the calendar year) during the triennial reassessment, followed by flat annual performance for 2011 and 2012. Another decrease of about 10% is expected for 2013, the next triennial reassessment.
Ohio law establishes a maximum millage of 10 mills for all overlapping taxing units, without a vote of the people. Parma's total millage is currently about 7.1 mills, 3.4 mills of which is the city's share subject to the statutory cap.
MODERATE DEBT PROFILE
The city's debt profile is moderate due to a statutory designation of a portion of income tax receipts for capital needs. Overall debt is low at $677 per capita or 1.2% of market value. Amortization is rapid with 78% of debt retired in 10 years and future capital needs are modest.
Pension costs were a manageable 6% of spending in 2011. The city provides pension benefits through state-administered plans and funds 100% of its required contribution. Total debt service, required pension contribution, and OPEB payment requirements were average, at under 18% of spending.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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Secondary
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Maria Coritsidis, +1-212-908-0514
or
Committee
Chairperson:
Doug Scott, +1-512-215-3725
Managing Director