Fitch Affirms Westlake, Ohio's LTGOs at 'AAA'; Outlook Stable
Fitch Ratings has taken the following rating actions on Westlake, OH's bonds:
--Approximately $13.5 million limited tax general obligation (LTGO) bonds affirmed at 'AAA';
--Implied unlimited tax general obligation (ULTGO) rating affirmed at 'AAA'
The Rating Outlook is Stable.
The bonds are secured by the levy of ad valorem taxes limited by rate within the 8.7 mills granted by the city's charter.
KEY RATING DRIVERS
AFFLUENT WELL-LOCATED COMMUNITY: The city benefits from its close proximity to Cleveland and exhibits strong socioeconomic indicators including above-average resident wealth levels, strong full value per capita, and below-average unemployment.
HEALTHY PROPERTY TAX BASE: The wealthy tax base is diverse with healthy collections and the property tax rate is comprised primarily of continuous levies which mitigate renewal risk.
WELL-MANAGED FINANCIAL OPERATIONS: The city has a history of strong solid management which has produced strong reserve and liquidity levels and ample financial flexibility.
MANAGEABLE LONG-TERM LIABILITIES: Above-average debt amortization combined with a well-maintained infrastructure with dedicated income tax revenues for capital improvements moderates the need for future borrowing, allowing the city to keep a manageable debt profile.
IMPLIED ULTGO RATED ON PAR: Fitch makes no distinction between the LTGO rating and the implied ULTGO rating due to the financial flexibility offered by the city's high reserve levels.
The city is located in Cuyahoga County in northeastern Ohio, approximately 13 miles west of Cleveland, 15 minutes from the airport, and in close proximity to three interstates.
AFFLUENT POPULATION BENEFITS FROM CLOSE PROXIMITY TO CLEVELAND
With a modest 2010 population of 32,729, an increase of 3.2% from 2000, Westlake is home to an affluent population, featuring per capita income and median household income equal to 166% and 144%, respectively, of the state average. The city is home to world and national headquarters including Nordstrom, Travel Centers of America, Koyo Corporation and Bonnie Bell. Crocker Park, a mixed-use planned development, is located on 75 acres in western Westlake. The development features high-end retailers, restaurants, office space and residential dwellings. In 2011, American Greetings announced plans to move its corporate headquarters in 2014 to Westlake from Brooklyn, Ohio. The company plans to move about 1,500 full-time workers with a payroll of $155 million to an undeveloped site at the south end of Crocker Park. The city is currently in discussions with American Greetings and the developer regarding tax increment financing for the project.
The local economy supports a stable labor force with historical unemployment rates below state and national levels. In September 2012, the city reported an unemployment rate of 5.7%, compared to state and U.S. rates of 6.5% and 7.6%, respectively. Major employers include St. John-West Shore Hospital (1,392 employees), Hyland Software (1,038) and Westlake City Schools (556).
HEALTHY PROPERTY TAX BASE
Despite a slight contraction from the recession, the city's tax base remains solid, generating an above-average full value per capita of $120,000. Property tax revenues account for approximately 29% of general fund revenues. The tax base is diverse with the top 10 property taxpayers comprising 9.3% of assessed value, and total property tax collections are healthy, averaging 98%. The city's tax rate is relatively low - in 2012 Westlake had the 15th lowest residential and 8th lowest commercial property tax rate out of 80 districts within Cuyahoga County. The property tax rate consists primarily of continuous levies, which Fitch views positively as there is no renewal risk. The one levy that requires renewal, the 0.90 mill supplement for police and fire, was renewed for five years in November 2011. The city has a strong history of voter support for millage renewals.
WELL-MANAGED FINANCIAL OPERATIONS PRODUCE STRONG RESERVES
Income tax revenues are the primary source of general fund revenues, comprising 41%. The city levies a 1.5% income tax. Of the 1.5%, one percent is unvoted; 3/8th of one percent is voted through 2023 and dedicated to the infrastructure capital projects fund; and 1/8th of one percent is voted and dedicated to operations and maintenance of the recreation program and center. This levy will expire in 2020, the last year for debt service on recreation bonds issued in 2008. If residents work in a locality that has a municipal income tax, the city provides a 100% tax credit.
Financial operations are well maintained, preserving ample reserves which provide comfortable margins for liquidity. The city has traditionally maintained large balances in its general fund, well in excess of the policy minimum of three months operating expenses. The city implemented GASB 54 in fiscal 2009. After recording a $5.2 million operating surplus in 2009, the unrestricted (sum of committed, assigned, and unassigned) fund balance held the equivalent of 94% of general fund spending. The city ended 2010 and 2011 with net surpluses after transfers of $2.5 million and $7.1 million, respectively. Unrestricted general fund balances continued to be strong at 97% and 132% of spending for 2010 and 2011, respectively. Preliminary results through the 10 months ending Oct. 31, 2012, are positive with income tax revenues 7% ahead of last year. Officials are estimating a $31 million general fund cash balance at the end of 2012, on par with 2011 cash results. Fitch believes the proactive and long-standing management team, which follows prudent budgeting practices, will continue to provide the city with ample financial flexibility and reserves.
MANAGEABLE LONG-TERM LIABILITIES
The city's debt burden at $4,481 per capita or 3.8% of full value is moderate and is made up of primarily overlapping school district debt. Amortization is well above-average with 93% of debt retired in 10 years. The five-year (2012-2016) capital improvement plan totals approximately $56 million with the majority of the projects funded from dedicated income tax levies in the infrastructure capital improvements and recreation funds. The city provides pension benefits through the state-administered plan and funds 100% of its required contribution. Carrying costs for debt and pensions (including other post-employment benefits) is manageable at 10.3% 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 the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', 14 Aug 2012.
'U.S. Local Government Tax-Supported Rating Criteria', 14 Aug 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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