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MOODY'S ASSIGNS A1 RATING TO JACKSON COUNTY'S (MO) $11.7 MILLION SPECIAL OBLIGATION REFUNDING BONDS, SERIES 2011A AND Aa3 RATING TO $24.7 MILLION SPECIAL OBLIGATION BONDS SERIES, SERIES 2011B; OUTLOOK IS STABLE

03 May 2011

Aa3 RATING APPLIES TO $89 MILLION IN POST-SALE LEASEHOLD REVENUE AND SPECIAL OBLIGATION DEBT AND $415 MILLION IN POST-SALE SPECIAL OBLIGATION (DEDICATED TAX) DEBT; A1 RATING APPLIES TO $11.7 MILLION IN POST-SALE LEASEHOLD REVENUE AND SPECIAL OBLIGATION D

County
MO

Moody's Rating

ISSUE

RATING

Special Obligation Refunding Bonds (Truman Sports Complex Project) Series 2011A

A1

  Sale Amount

$11,715,000

  Expected Sale Date

05/04/11

  Rating Description

Lease Rental

 

Special Obligation Bonds (Truman Medical Center Project), Series 2011B

Aa3

  Sale Amount

$24,675,000

  Expected Sale Date

05/04/11

  Rating Description

Lease Rental

 

Opinion

NEW YORK, May 3, 2011 -- Moody's Investors Service has assigned an A1 rating to Jackson County's (MO) $11.7 million Special Obligation Refunding Bonds, Series 2011A and a Aa3 rating to Jackson County's (MO) $24.7 million Special Obligation Bonds, Series 2011B. Concurrently, Moody's has affirmed the Aa3 rating on the county's remaining outstanding leasehold revenue/annual appropriation debt, affecting approximately $89 million post-sale and further affirmed the Aa3 rating on the county's outstanding Series 2006 Special Obligation Bonds (Harry S. Truman Sports Complex Project), of which, $415 million of par remains outstanding. Additionally, Moody's has affirmed the county's Aa2 issuer rating and the county's stable outlook.

SUMMARY RATINGS RATIONALE

Debt service payments on the Series 2011A and Series 2011B bonds are secured by the county's annual appropriation pledge. Debt service on the Series 2011A bonds is expected to be paid from revenues generated by the county's park property tax levy and debt service on the Series 2011B bonds is expected to be paid from revenues generated by the county's property tax health levy. Proceeds from the Series 2011A bonds will be used to refinance the county's 1998 sports complex bonds, originally issued to finance the costs of improvements to Fleming Park and the Truman Sports Complex. Proceeds from the 2011B bonds will fund the renovation and improvement of the Truman Medical Center Hospital Hill and Truman Medical Center Lakewood.

The Series 2006 bonds are secured by a dedicated 3/8ths cent county-wide sales tax, various ancillary revenue streams and the county's appropriation pledge. Proceeds from the Series 2006 bonds financed substantial refurbishments and modernization projects to Kauffman Stadium and Arrowhead Stadium (collectively known as the Harry S. Truman Sports Complex).

Affirmation of the Aa2 issuer rating reflects the county's large and diverse tax base that includes much of metropolitan Kansas City (rated Aa2/stable); average socio-economic indices; improving financial position characterized by a trend of increased revenues and conservative budgeting practices; and manageable debt burden not expected to increase in the near term. The one and two notch distinctions on the leasehold revenue debt represent the risk of non-appropriation as well as the essentiality of the projects originally financed. Affirmation of the Aa3 rating with a stable outlook on the Series 2006 special obligation bonds reflects the dedicated sales tax revenue stream approved by a majority of county voters, strong legal provisions in the trust indenture and lease agreements between the county and the teams stipulating the county will cover any deficiency in pledged revenues, and the economic sensitivity of the revenue source (sales tax).

The stable outlook reflects the county's substantial economy and its location in a large metropolitan area. Our outlook also incorporates the county's improving financial position.

STRENGTHS

-Satisfactory reserve levels and trends

-Large and diverse tax base located in a major metropolitan area

CHALLENGES

- Reliance on economically sensitive revenue source (sales tax)

-Recent multi-year trend of structural imbalance with relatively narrow liquidity

DETAILED CREDIT DISCUSSION

ADEQUATE LEGAL PROVISIONS ON APPROPRIATION-BACKED DEBT

The Series 2011A bonds are notched once from the county's issuer/general obligation rating due to the risk of non-appropriation and the essentiality of the project being financed. Jackson County is required by Missouri statute to provide healthcare facilities for the indigent from county funds. Such facilities are provided by the county's Health Fund, funded by the county's Property Tax Levy and a portion of the county's general sales tax. Providing healthcare services to indigent county residents is an essential service mandated by law.

Other existing debt reflecting the single notch distinction due to the risk of non-appropriation and the essential purpose of the financed project include the Jackson County Special Obligation Capital Improvement Bonds (Truman Medical Center Project), Series 2001, Jackson County Special Obligation Bonds (Truman Medical Center Project), Series 2002, Jackson County Public Building Corporation's Leasehold Revenue Bonds Series 2005, Jackson County's Special Obligation Bonds (Harry S. Truman Sports Complex Project), Series 2006, Jackson County Public Building Corporation's Leasehold Refunding and Improvement Revenue Bonds, Series 2006A, Jackson County Public Building Corporation's Leasehold Revenue Bonds, Series 2006B and Jackson County Special Obligation Bonds (Animal Shelter Project) Series 2010. The one-notch distinction from the Aa3/stable issuer rating for these bonds reflect appropriation risk, satisfactory legal provisions, as well as the essential nature of the projects financed and manageable lease burden.

AFFIRMATION OF SERIES 2006 SPECIAL OBLIGATION (HARRY S. TRUMAN SPORTS COMPLEX) BONDS REFLECTS STRONG LEGAL STRUCTURE AND CONTINUED ADEQUACY OF PLEDGED REVENUES

The Series 2006 bonds are secured by the county's dedicated 3/8ths cent county-wide sales tax and various ancillary revenue streams. Additionally, the indenture stipulates the county will, subject to appropriation, make up any deficiency of the pledged revenues over debt service for the benefit of bondholders. The rating is based on the dedicated sales tax revenue stream that was approved by a majority of county voters, strong legal provisions in the trust indenture and lease agreements between the county and the teams that include provisions which stipulate the county will cover any deficiency in pledged revenues, subject to appropriation, and because the revenue source (sales tax) is economically sensitive. Debt service coverage has averaged 1.27 times annually, with 1.23 times coverage in 2010. Debt service is level over the life of the bonds. We expect adequate coverage through the life of the bonds. The indenture also provides for important structural provisions that add strength to the security of the pledge. Debt service holds a first claim on all of the pledged revenues, with surplus funds to be held in the Repair, Maintenance, Management and Operation Fund (RMMO Fund) - a fund held by the trustee and to be used solely for debt service and future maintenance and repair needs of the facilities (by mutual consent of the county and the teams). The 3/8ths-cent sales tax may only be used for debt service on the project and reinvestment in the facilities (from the accumulated RMMO Fund balances after debt service payments), and cannot be redirected by the county for any other purpose. Favorably, the county has directed the Missouri Department of Revenue to transfer the sales tax collections directly to the trustee. Though the payment of the sales taxes to bondholders is technically subject to the county's annual appropriation pledge, Moody's believes the risk of non-appropriation is largely mitigated by the fact that an act of non-appropriation would not allow the county to use the funds for other purposes - nor could the county direct the Missouri Department of Revenue to fail to collect the sales tax. The sales tax - approved by 54% of voters during an April 4, 2006 referendum - is subject to sunset in 2032, though repayment of the bonds is structured to coincide with the life of the sales tax. Moreover, the sales tax remains in place regardless of a violation of lease terms by one or more of the teams or the county, loss of the assets to natural disaster, league strikes, etc. Average annual collections on the dedicated sales tax has been $31.2 million, compared to maximum annual debt service of $32.1 million. Other pledged revenues include a $3 million annual contribution from the state, $2 million annual contribution from the city, and an average of approximately $3.2 million in annual payments from the teams, which include base rents and percentage distribution of stadium revenues.

SIZEABLE AND DIVERSE ECONOMIC BASE INCLUDES SUBSTANTIAL PORTION OF KANSAS CITY METROPOLITAN AREA

We believe the county's large tax base will remain stable given its diverse make-up and its role as the economic center of the Kansas City metropolitan region. Jackson County contains the majority of the City of Kansas City, as well as the suburban cities of Lee's Summit (Aaa), Blue Springs, Grandview (Aa3), Raytown and Independence (A1). The county encompasses the majority of population and commercial activity within the Missouri side of the Kansas City MSA. Benefiting from a combination of the central city and more affluent suburbs, the county is the largest in the 15-county area. Additionally, with more than 705,708 people and a sizable $40 billion tax base, it is home to over half of the largest area private sector employers, as well as significant governmental employment. Favorably, the county is experiencing significant economic development. The National Nuclear Security Administration, a federal agency managed by Honeywell Inc. (A2/stable), is building a new facility that will replace its existing facility. The project is expected to be completed by 2014. Additionally, Ford Motors' (Ba2/positive) Claycomo plant is undergoing a $400 million expansion, which is estimated to bring 300 new jobs to the county. Cerner Corporation, a large healthcare software provider has relocated to the county, a development which is expected to bring 4,000 new jobs to Jackson County beginning in 2011 and over the next six years. Cerner further expects to bring 4,000 additional new jobs to its Kansas facility during the same six-year period.

While the county has seen elevated unemployment levels during the recent recession which have tracked higher than national and state levels, at 10.1% in March 2011 according to the Bureau of Labor Statistics, the Kansas City MSA continues to benefit from the presence of a significant level of agribusiness, manufacturing, commercial and government employment. Downtown Kansas City has seen a significant amount of redevelopment and revitalization in recent years leading to both tax base growth and an increased degree of vitality in the county's economy. Unlike many counties that include urban cores, Jackson County maintains an ample amount of undeveloped land that favorably positions it for future growth as the economic climate rebounds. County demographics are solid for an urban county, with per capita and median family income at 96% and 97% of the nation, respectively.

STRENGTHENED FINANCIAL OPERATIONS CHARACTERIZED BY POSITIVE BUDGET VARIANCES

We expect the county's fiscal position will continue to improve as the result of the stabilization of primary revenue sources, which include sales tax, charges for services, property taxes and intergovernmental revenues. However, we note the county's recent trend of narrow reserves and structural imbalance. In FY2009, significant revenue declines necessitated mid-year budget reductions. Sales tax revenues, which comprised 28% of FY2009 General Fund revenues, declined over 6% from FY2008 levels. Management responded by implementing a hiring freeze and delaying approximately $3 million of appropriated expenditures. As a result of these reductions, the fiscal 2009 unreserved undesignated General Fund balance improved slightly to $5.1 million, or a narrow 6.7% of General Fund revenues. Unaudited 2010 results reflect an substantial increase in the General Fund balance to $11.6 million, or an improved 14.2% of General Fund revenues. Management attributes the $5.5 million increase to favorable revenue and expenditure variances. $4.8 million of additional revenues in FY2010 was due to new state legislation that increased fees and penalties for delinquent taxes. This is expected to be an ongoing revenue source and is projected to generate approximately $6.3 million of additional revenue in 2011. Another notable revenue variance was in sales tax collections, which officials originally projected to decline by 2.7%, but actually increased slightly. In fiscal 2011, officials expect the year- end General Fund balance to remain stable, with $3.5 million set aside as a contingency as the result of the county's biennial reassessment, Net of this contingency for potential assessment appeals, the estimated year-end 2011 General Fund balance will be $8.1 million, or an adequate 10% of 2010 level reserves.

Though the county has faced significant fiscal pressures in recent years resulting from limited available operating reserves and a challenging revenue environment, we note the credit strengths inherent in the county's profile. Among these is a lack of OPEB liability as the county does not offer retiree health benefits and a recent trend of improving cash reserves.

MANAGEABLE DEBT LEVELS

We expect the county's debt position to remain manageable given the lack of immediate borrowing plans. The overall debt burden tracks above state and national levels (3.0% as compared to 1.5% and 2.0% respectively). The direct debt burden is a low 0.3% of full valuation. Principal amortization is below-average, with 43.0% of principal retired within ten years. Officials have no immediate plans to issue additional debt. All of the county's debt is long-term and fixed rate. The county is not party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - UP

-Continued strengthening of reserve levels resulting in sustained overall structural balance

-Improvement of the county's socioeconomic indices

WHAT COULD CHANGE THE RATING - DOWN

-Deterioration of reserve levels commensurate with lower rating categories

-Weakening of the county's demographic profile

KEY STATISTICS

Estimated 2009 population: 705,708

2010 full market valuation: $40 billion (0.9% average annual increase since 2005)

Estimated full value per capita: $56,611

Per capita income as % of U.S. (1999): 96.3%

Median family income as % of U.S. (1999): 96.8%

Unemployment rate (February 2011): 10.8%

Unaudited FY 2010 General Fund balance (GAAP): $11.6 million (14% of unaudited 2010 General Fund revenues)

Debt burden: 3.0% (0.3% direct)

Principal amortization (10 years): 43.0%

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in October 2004.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Megan Roudebush
Analyst
Public Finance Group
Moody's Investors Service

Mark G. Lazarus
Backup Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS A1 RATING TO JACKSON COUNTY'S (MO) $11.7 MILLION SPECIAL OBLIGATION REFUNDING BONDS, SERIES 2011A AND Aa3 RATING TO $24.7 MILLION SPECIAL OBLIGATION BONDS SERIES, SERIES 2011B; OUTLOOK IS STABLE
No Related Data.
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