Aa2 RATING APPLIES TO $21.5 MILLION OF GOLT DEBT, INCLUDING CURRENT OFFERING
Road Improvement Limited Tax General Obligation Bonds, Series 2010
Expected Sale Date
General Obligation Limited Tax
NEW YORK, Dec 1, 2010 -- Moody's Investors Service has assigned a Aa2 rating to Sycamore Township's (OH)
$1.66 million Road Improvement Limited Tax General Obligation Bonds, Series
2010. Concurrently, Moody's has affirmed the Aa2 rating on the township's
approximately $21.5 million of outstanding general obligation limited tax debt,
including the current issue.
The bonds are secured by a limited tax general obligation pledge, subject to
Ohio's statutory 10 mill limitation. Proceeds from the bonds will finance the
construction of a road to a new FBI headquarters site located in the township.
The assignment of the Aa2 rating reflects the township's strong financial
operations supported by substantial alternate liquidity, a sizeable tax base in
the Cincinnati (Aa1/stable) metropolitan area, and manageable debt profile with
no future borrowing plans.
SATISFACTORY FINANCIAL OPERATIONS SUPPORTED BY AMPLE ALTERNATE LIQUIDITY
We believe the township's financial operations will remain stable, despite
recent declines in general fund reserve levels, given the significant amount of
alternate liquidity provided by TIF revenue. The township's reserve levels
decreased significantly from 2008 to 2009, from $2.6 million to $618,000 (or a
narrow 8.5% of revenues), as the result of a loan from the General Fund for a
capital project. The loan will be paid back with bond proceeds from the current
issue. At the end of 2010, management projects a year-end General Fund balance
of $1.5 million and an operating surplus of $500,000 driven by estate tax
revenues and property tax revenues holding steady. In 2010, management
implemented significant cost reduction measures, including entering into solar
power agreements, which lowered the township's electricity costs by 35% and its
gas costs by 45%. The 2011 budget is expected to be balanced. The township has
a policy of maintaining $1.5 million in the General Fund and once the
outstanding loan to the General Fund is paid back in the current fiscal year,
the township will be in compliance with this guideline.
While we generally consider large fluctuations within reserve levels a negative
pressure to credit quality due to cash-flow concerns, the township reports an
additional $26 million in liquidity within its Special Revenue Fund, which is
somewhat restricted for TIF and capital expenses, but bolsters the township's
overall financial flexibility. While tax increment revenues, which make up a
portion of the township's Special Revenue Fund, are earmarked for capital
improvements, interest earnings can be used for any municipal purpose. The
township transfers these earnings annually to enhance General Fund revenues.
Transfers in since fiscal 2008 have averaged 53.6% of total General Fund
revenues. General Fund operations are further supported by estate tax revenues
which tend to be very volatile. Between fiscal 2005 and 2009, collections have
averaged $4.8 million, ranging from a low of $2.5 million in 2005 to a peak in
2008 of $8.6 million. This is substantial, given that the average annual General
Fund revenues in those years was $5.6 million. In response to the volatility of
this revenue source, township management conservatively budgets for $1 million
in annual revenues received from this source. We believe the township manages
its reliance on an unpredictable revenue source through conservative budgeting.
MATURE TOWNSHIP IN CINCINNATI METRO AREA REALIZING CONTINUED COMMERCIAL NEW
We believe the township's moderately-sized tax base, located in Hamilton County
(Aa2/stable), will continue to experience only moderate growth in the near-term
as a result of fairly stable real estate property values and the State of Ohio's
(GO rated Aa1/negative outlook) complete phase-out of its tangible personal
property tax from 2006 through 2009. While the township has benefited from
significant retail and commercial development, most of the current
development falls within the township's ten TIF districts and is not currently
counted in its full valuation. One of the larger commercial developments is the
Kenwood Towne Center, which is a primary retail destination in Hamilton County.
The township, while fully built out, continues to experience redevelopment in
its commercial areas. Management reports the township's Kenwood Center is 98%
occupied. The FBI headquarters project, for which the current borrowing
will provide important infrastructure, is expected to bring 300 new jobs to the
township. Management expects the local retail sector to benefit from the
increase in daytime population. Jewish Mercy Hospital is adding 45,000 square
feet of new medical office space in connection with the hospital's expansion of
its trauma center, in-patient facility and intensive care unit. Management
further reports that UBS relocated to the township in 2010, yielding 125 new
jobs. The unemployment rate for the township's school district,
Sycamore Community School District (Aaa) was 9.4% in August 2010, tracking near
state and national levels, which were 9.7% and 9.5%, respectively, for the same
time period. Income indices for the district, which are representative of
those of the township, track above state and national levels, with per capital
and median family income at 179.6% and 171.9% of national figures, respectively,
based on 2000 census data. We expect that the township's economy will continue
to enjoy stability given its location, significant retail component which
diversifies the tax base and as property values hold steady.
MANAGEABLE DEBT PROFILE; CASH FINANCING OF MOST CAPITAL EXPENDITURES
We anticipate the township's debt profile will remain affordable given limited
borrowing needs. Inclusive of the current sale, the township's debt position is
slightly higher than average, at 3.4% (1.2% direct). Principal retirement is
below average, with 59.0% of debt retired in 10 years, compared to the US median
of 77.3%. All of the township's debt is fixed rate and there is no exposure to
derivatives or swap agreements.
WHAT COULD CHANGE THE RATING - UP
-Significant improvement in the township's financial profile, including
decreased fluctuation in general fund balance
-Growth in the township's tax base
WHAT COULD CHANGE THE RATING - DOWN
-Sustained structural imbalance and an inability to maintain reserves or
liquidity at satisfactory levels
- Deterioration of the township's tax base and demographic profile
Population (2000 census): 19,765
2010 full valuation: $2.0 billion
Estimated full value per capita: $100,166
Sycamore Community City School District Per capita income (2000): $38,776 (as %
of State: 184.6; as % of US: 179.6)
Sycamore School District Median Family income (2000): $86,046 (as % of State:
172.0; as % of US: 171.9%)
Debt burden: 3.4% (1.2% direct)
Principal amortization (10 years): 59.0%
Fiscal 2009 General Fund Cash Balance: $618,000
Fiscal 2009 Special Revenue Fund Cash Balance: $26 million
Post-sale general obligation debt outstanding: $21.5 million
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009.
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.
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Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
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MOODY'S ASSIGNS Aa2 RATING TO SYCAMORE TOWNSHIP'S (OH) $1.66 MILLION ROAD IMPROVEMENT LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2010
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