Aa2 RATING APPLIES TO $6.1 MILLION OF POST-SALE GOLT DEBT RATED BY MOODY'S
Various Purpose Refunding Bonds, Series 2011 (General Obligation- Limited Tax)
Expected Sale Date
General Obligation Limited Tax
NEW YORK, Sep 15, 2011 -- Moody's Investors Service has assigned a Aa2 rating to the City of
Highland Heights's (OH) $5.3 million General Obligation (Limited Tax) Various
Purpose Refunding Bonds, Series 2011. Concurrently, Moody's has affirmed the Aa2
rating on the city's GOLT debt. Post-sale, Highland Heights will have $6.1
million of GOLT debt outstanding rated by Moody's.
SUMMARY RATINGS RATIONALE
The bonds are secured by the city's general obligation limited tax
pledge, subject to the city's 12 mill debt service limitation provided for
in its charter. Proceeds of the bonds will refund the city's outstanding Various
Purpose Bonds, Series 1997 and Series 2001 for an estimated net present value
savings of approximately $450,000 or 8% of refunded par. The Aa2 rating reflects
the city's moderately sized tax base with above average income indices in the
Cleveland (GO rated A1/Stable outlook) metropolitan region; strong financial
operations with healthy reserve levels; and manageable debt profile with
no future borrowing plans.
-Above average residential income indices
-Solid financial operations characterized by healthy reserves
-Reliance on economically sensitive income tax revenues
DETAILED CREDIT DISCUSSION
MODERATELY-SIZED TAX BASE IN CLEVELAND METROPOLITAN AREA WITH ABOVE AVERAGE
RESIDENTIAL WEALTH INDICES
The city's tax base is expected to remain stable due to above residential wealth
indices and stable operations reported from major employers within the city.
Located approximately 10 miles northeast of downtown Cleveland, this primarily
residential suburb is moderately-sized with a 2010 full valuation of $1.2
billion. Reflecting a significant decline in 2009 due to the triennial
adjustment and the phase out of tangible personal property, the city's tax base
declined at an average annual rate of 0.3% from 2005 to 2010. City officials
continue to encourage economic development through the city's economic
development program, which currently provides grants to five local employers in
the form of income tax rebates. Officials report other recent developments such
as the construction of an assisted living facility and a new shopping center
which replaced an old gas station. Reflecting a trend of continuing growth, the
city's 2010 census population increased to 8,345, a 3.3% increase from the 2000
census. The city is highly dependent upon income tax revenues for operations,
and management reports operations at its major employers and income tax
withholding sources, including Phillips Electronics (1,000 employees),
Progressive Insurance (1,000 employees) and Swagelok Co. (355 employees)
remain stable, with Phillips and Swagelok both recently expanding
their facilities. City resident income levels exceed state and national medians,
with median family income at 157.7% of state and national levels in the 2000
census. At 8.8% in June of 2011, unemployment in Cuyahoga County (GO rated
Aa1/Stable outlook) trends slightly below state (9.2%) and national levels
(9.3%) for the same time period.
SOLID FINANCIAL OPERATIONS WITH HEALTHY RESERVE LEVELS
The city's solid financial operations are expected to remain stable due to
healthy reserve levels and conservative budgeting, which help to mitigate the
city's reliance on economically sensitive income tax revenues. The city finished
fiscal year 2009 with a modest General Fund surplus of $287,000, bringing
reserves to $5.7 million, or a healthy 53.1% of revenues. In fiscal year 2010,
the city again experienced positive operations, which officials attribute to
conservative budgeting and building a contingency into its annual budget. While
audited figures are not yet available, preliminary unaudited data indicates that
the city ended fiscal year 2010 with an increased General Fund balance (GAAP
basis) of $6.7 million, or a slightly increased 57.5% of revenues.
For the current fiscal year 2011, the city expects to experience positive
operations, primarily due to better than expected income tax revenues. Income
tax revenues from the city's 2% income tax are the city's primary source of
operating revenues (77.8% of fiscal year 2009 General Fund revenues). The city's
income tax rate was increased to 2% by voters in 2006, and is authorized on a
continual basis. Currently, the city allocates 92.5% of income tax receipts for
General Fund operations and 7.5% for debt service, although the city maintains
the flexibility to utilize all income tax revenues for operations if necessary.
On a cash basis, officials expect to end fiscal year 2011 with a General Fund
balance of approximately $6 million, in comparison to the unaudited 2010 cash
basis General Fund balance of $5.2 million. Looking ahead to fiscal year 2012,
the city has not year begun the budget process, but is preparing for
reductions in state aid and estate tax revenues, although these reductions are
not expected to significantly impact operations.
DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE; NO FUTURE BORROWING PLANS
The city's debt burden expected to remain manageable due to rapid
principal amortization of long term debt (91.7% over ten years) and limited
future borrowing plans. The city's direct and overall debt burdens are moderate
at 1.1% and 2.0% of full value, respectively. The city does not intend to issue
additional debt in the near to medium term, preferring instead to rely on
pay-as-you-go financing for its capital needs. All of the city's debt is
fixed rate, and the city is not a party to any interest rate swap agreements.
WHAT COULD CHANGE THE RATING - UP
- Strengthening of the city's tax base to levels consistent with higher rating
WHAT COULD CHANGE THE RATING - DOWN
- Sustained operating deficits leading to declining reserve levels
- Declines in tax base valuation and/or residential wealth indices
2010 census population: 8,345 (3.3% increase since 2000)
2010 Full value: $1.1 billion
1999 per capita income as % of state/US: 148.5% / 144.5%
1999 median family income as % of state/US: 157.7% / 157.7%
Fiscal 2009 General Fund balance: $5.7 million (53.1% of General Fund revenues)
Unaudited Fiscal 2010 General Fund balance: $6.7 million (57.5% of General Fund
Direct debt burden: 1.1%
Overall debt burden: 2.0%
Principal amortization (ten years): 91.7%
Cuyahoga County unemployment rate (June 2011): 8.8%
PRINCIPAL METHODOLOGY USED
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009. Please see the
Credit Policy page on www.moodys.com for a copy of this methodology.
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MOODY'S ASSIGNS Aa2 RATING TO CITY OF HIGHLAND HEIGHTS'S (OH) $5.3 MILLION GENERAL OBLIGATION (LIMITED TAX) VARIOUS PURPOSE REFUNDING BONDS, SERIES 2011
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