Loading...
April 1, 2013Summary: Prattville, Alabama; General Obligation Primary Credit Analyst: Daniel Cuddy, Boston (1) 617-530-8120; daniel_cuddy@standardandpoors.com Secondary Contact: Edward R McGlade, New York (1) 212-438-2061; edward_mcglade@standardandpoors.com Table Of Contents Rationale Outlook Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 1, 2013 1 1107274 | 301753340 Summary: Prattville, Alabama; General Obligation Credit Profile US$9.83 mil GO rfdg warrants ser 2013-A dtd 04/01/2013 due 03/01/2027 Long Term Rating A/Stable New Prattville GO Unenhanced Rating A(SPUR)/Stable Upgraded Many issues are enhanced by bond insurance. Rationale Standard & Poor's Ratings Services raised its underlying rating (SPUR) to 'A' from 'A-' on the city of Prattville, Ala.'s general obligation (GO) debt. The upgrade reflects the city's improved financial position following the implementation of improved budgeting practices and expenditure reductions. Additionally, we assigned our 'A' long-term rating to the city's series 2013A GO refunding warrants. The outlook on all the ratings is stable. \ The rating reflects our view of the city's: ·Inclusion in the Montgomery metropolitan statistical area (MSA), which serves as a regional economic base and is anchored by the presence of the state government and the Maxwell Air Force Base; ·Good incomes, in terms of median household effective buying income; and ·Moderate debt levels, coupled with limited future capital needs. These strengths are offset by the city's high debt service carrying charges. Although the city pledges no specific tax or other revenue source for repayment of the outstanding warrants, a full faith and credit pledge ultimately secures the debt. Prattville, with a population of roughly 34,400, is in central Alabama, in Autauga and Elmore counties. The city is approximately 12 miles north of the state capital, Montgomery--home to many state agencies and Maxwell-Gunter Air Force Base. Prattville's inclusion in the Montgomery MSA provides the city with a solid, growing economic and employment base. While the city's taxable value has decreased by 1.4% in fiscal 2013, the property tax base has risen by a cumulative 21% since fiscal 2008, to $356.9 million, or an estimated market value of $1.98 billion, in fiscal 2013. The property tax base is concentrated, in our opinion, with the leading 10 taxpayers accounting for 55% of the city's total assessed value (AV). Due to extensive commercial development, the city's primary source of income--sales tax revenue--has increased by 40% in the past five fiscal years. In addition to a growing number of retailers, the city is home to a few major international industrial manufactures, including an Argentinean brake manufacturer and a Japanese automotive part WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 1, 2013 2 1107274 | 301753340 supplier. The city still has a large residential presence, with housing accounting for the largest share, or 42.6%, of land use. Median household income is, in our opinion, a good 105% of the national level. Market value is a strong $57,000, per capita. Prattville's financial position is good, in our opinion. Management projects the city will end fiscal 2013 with an additional $500,000 increase to the unreserved general fund, resulting in a total unassigned fund balance of $1.6 million, or a good 6.4% of operating expenditures. For fiscal 2012, unaudited results indicate the city ended with a $500,000 surplus, resulting in a total unassigned fund balance of $1.09 million, or a good 4.4% of operations. Additionally, the city's assigned general fund balance, earmarked for its health insurance program, is $1.5 million, resulting in a combined unassigned and assigned general fund balance of $2.6 million, or a strong 10% of operating expenditures. The 2012 surplus operations reflect increased sales tax revenues generated as a direct result of a 1% sales tax increase adopted May 2011. Audited results for fiscal 2011 reflect an unassigned general fund balance of $550,000, or an adequate 2% of operating expenditures. The city has taken several cost-cutting measures to help rebuild its reserves, including instituting a hiring freeze, cross-training employees, and renegotiating its phone system contracts. City officials will not begin addressing the 2014 budget until May. Sales tax revenue accounts for nearly 86% of the city's general fund revenue, or $22.4 million in fiscal 2012. Since fiscal 2008, sales tax revenue increased by roughly 41%. The city budgeted for flat growth in sales tax revenue for fiscal 2013, but is on track to exceed the budgeted amount by 1% to 2%. The 1% sales tax increase passed in May 2011 is dedicated entirely to paying debt service. Standard & Poor's deems Prattville's management practices "standard" under its Financial Management Assessment methodology, indicating that the city maintains adequate policies in some, but not all, key areas. Officials monitor the budget quarterly and make adjustments as needed. By constitutional mandate, the city has a basic formalized debt management policy, which limits debt to 20% of the city's taxable AV. Representatives recently enacted a policy that requires the city to build and maintain a general fund balance of no less than 15% of operational expenditures. As such, management has indicated plans to meet the reserve policy over the next few years. While the city does not have a formal five-year rolling capital improvement plan, it has several policies regarding capital-related needs. The city does not have a formal investment policy or long-term financial plan. Prattville's overall net debt burden is a moderate at $1,364 per capita, or 4.1% of market value. Amortization is average, with officials planning to retire 65% of principal over the next 10 years. According to fiscal 2011 audited results, the city's debt service carrying charge was a high 22% of expenditures. Due to the city's limited capital needs, officials do not plan to issue additional debt over the next 18 to 24 months. The city participates in the Employees' Retirement System of Alabama (ERS) through which it provides pension and other post-employment benefits (OPEBs) to its retired employees. The city is currently required to contribute an actuarially determined rate of 8.53% of the covered payroll. For fiscal 2011, the city contributed $1.193 million, or an amount equal to 100% of its annual required contribution. The city also provides medical benefits to employees on retirement, and pays all costs in excess of the required employee premiums on a pay-as-you-go basis. The city's net OPEB obligation at the end of fiscal 2011 was $1.35 million. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 1, 2013 3 1107274 | 301753340 Summary: Prattville, Alabama; General Obligation Outlook The stable outlook reflects Standard & Poor's expectation that management will continue to monitor its reserves and continue to implement necessary cost-saving measures to further build up the fund balance. Additionally, we expect the economy and employment base will remain a stabilizing factor for Prattville. If the steps taken by the city do not prove adequate and reserves decline, there could be downward pressure on the rating. Alternatively, a positive general fund balance could result in further upward rating action. However, we do not anticipate a rating change within the two-year horizon of the outlook. Related Criteria And Research ·USPF Criteria: GO Debt, Oct. 12, 2006 ·USPF Criteria: Key General Obligation Ratio Credit Ranges – Analysis Vs. Reality, April 2, 2008 ·USPF Criteria: Financial Management Assessment, June 27, 2006 Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 1, 2013 4 1107274 | 301753340 Summary: Prattville, Alabama; General Obligation S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Copyright © 2013 by Standard & Poor's Financial Services LLC. All rights reserved. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT APRIL 1, 2013 5 1107274 | 301753340