Fitch Affirms Manistee County, MI LTGOs at 'AA-'; Outlook Stable
Fitch Ratings affirms its rating on the following Manistee County (the county) limited tax general obligation (LTGO) bonds:
--$1,590,000 LTGO bonds, series 2006, at 'AA-'.
In addition, Fitch assigns an implied unlimited tax general obligation (ULTGO) rating of 'AA-' to the county.
The Rating Outlook is Stable.
The LTGO bonds are secured by the county's full faith and credit general obligation limited tax subject to applicable constitutional, statutory and charter limitations.
KEY RATING DRIVERS
POSITIVE FINANCIAL PROFILE: The county has stable finances and a willingness to control costs resulting in adequate fund balances and budget stabilization resources.
CONSISTENT VOTER SUPPORT OF LEVIES: Property taxes, the county's primary revenue source, are subject to pentennial voter renewal. The levy renewal risk is substantially mitigated by a strong history of voter support.
LIMITED ECONOMY: The county's economy is limited but stable.
AVERAGE DEBT PROFILE: Overall long-term liabilities are average and do not represent a cost pressure for the county. Prudently, the county has reserved funds for future OPEB payments.
LTGO RATING ON PAR WITH IMPLIED ULTGO RATING: The LTGO bonds are rated on par with the implied ULTGO rating due to the strength of the county's reserves and implied financial flexibility. A reduction in financial flexibility could result in a rating distinction between the two ratings.
Located on the eastern shore of Lake Michigan, the county has a population of approximately 25,000.
STRONG FINANCIAL PROFILE
Financial management in the county is positive and characterized by conservative budgeting and careful cost management. The county has experienced consistent positive operating margins over the past five audited years and reports a sixth surplus of $167,000 for 2012 (unaudited). The county's ending unrestricted fund balance in fiscal 2011 was $1.6 million (15.7% of spending). Positive operations were achieved through continued cost containment in healthcare and wages and changes in staffing in the sheriff's department. Fitch considers as a credit positive that the county has additional financial flexibility of $1.4 million in 2011 in its budget stabilization fund.
The county's 2013 budget continues many cost-cutting measures from prior years and is balanced with a nominal use of fund balance. The county expects some ongoing budget pressure from Michigan's decision to phase out personal property tax and supplement locals at approximately 80%, but it anticipates some enhancement from both state Economic Vitality Incentive Program (EVIP) funding coming online for the county this year.
The county has six renewable property tax levies, unlike many Michigan municipalities, which obviates concerns about Headlee Amendment rollbacks to the county's financial profile. A history of strong voter support mitigates renewal risk. The levy renewals occur every five years and are staggered.
LIMITED, STABLE ECONOMY
The county's economy is limited, with Oaks Correctional Facility (state penitentiary) and the Little River Casino being the largest county employers, with approximately 800 and 400 employees, respectively, in 2010. Taxable assessed valuation (TAV) declined marginally (2.2%) in 2011, the county having largely been insulated from the housing boom-and-bust. Management expects TAV to be flat in its 2013 budget.
Current tax collections have weakened over the past three years to below 95%. Management reports that collections have returned to pre-recession levels due to some recent economic strengthening.
AVERAGE DEBT AND LONG-TERM OBLIGATIONS
The county's long-term liabilities do not represent a source of cost pressure for the county: the county's cost of carry in 2011 was a moderate 19.7% of general and debt service fund spending. The county's overall debt burden is moderate at 2.1% of market value and $2,451 per capita. Management has prudently used a portion of casino revenues for capital improvements rather than operations to limit the budget's exposure to volatility in that revenue source. The county has no plans to issue any significant new debt. Amortization is somewhat above average at 60% in 10 years. Debt service in 2011 represented a low 1.9% of spending.
The county participates in an agent pension plan administered by the Michigan Municipal Employees' Retirement System which covers substantially all county employees. Fitch expects that pension funding, which is currently a somewhat elevated 16.5% of FY 2011 spending ($1.5 million), will remain stable as the county fully funds its ARC.
The county funds other post-employment benefits (OPEB) on a paygo basis, which represents a scant $190,000 in 2013 (1.9% spending). The OPEB unfunded actuarially accrued liability is an immaterial percentage (less than 0.1%) of market value. The county has restricted $922,000 for forward-funding OPEB costs.
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. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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