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MOODY'S ASSIGNS Aa3 RATING TO CITY OF NORTH LIBERTY (IA) $1.73 MILLION G.O. BONDS, SERIES 2010A AND $6.77 MILLION G.O. URBAN RENEWAL BONDS, SERIES 2010B

23 Sep 2010

Aa3 RATING APPLIES TO $28.5 MILLION IN POST-SALE GOULT DEBT

Municipality
IA

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2010A

Aa3

  Sale Amount

$1,730,000

  Expected Sale Date

09/28/10

  Rating Description

General Obligation

 

General Obligation Urban Renewal Bonds, Series 2010B

Aa3

  Sale Amount

$6,765,000

  Expected Sale Date

09/28/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Sep 23, 2010 -- Moody's Investors Service has assigned a Aa3 rating to the City of North Liberty's (IA) $1.73 million General Obligation Bonds, Series 2010A and $6.77 million General Obligation Urban Renewal Bonds, Series 2010B. At the same time, Moody's has affirmed the Aa3 rating on the city's outstanding general obligation debt, affecting $28.5 million post-sale.

RATINGS RATIONALE

Debt service payments on the bonds are secured by the city's general obligation unlimited tax pledge and proceeds will be used to make street and utility improvements as well as finance land purchases and improvements within the city's urban renewal area. Officials anticipate abating a portion of the debt service requirements with tax increment revenues, consistent with historical practices. We believe the rating actions reflect the city's favorable tax base expansion and location between the Cedar Rapids and Iowa City; improving reserve position enhanced by sound financial management; and somewhat leveraged, but manageable debt position with annual borrowing planned.

MODERATELY-SIZED TAX BASE LOCATED BETWEEN CEDAR RAPIDS AND IOWA CITY

We expect the city's moderately-sized tax base, valued at $942 million in 2009, will continue to exhibit solid growth due to ample land remaining for development, ongoing population increases, and favorable development patterns for commercial and residential properties. Located in Johnson County (rated Aa2) along highway 380, North Liberty is approximately equidistant between Cedar Rapids (rated Aaa) and Iowa City (rated Aaa). Historically, the city has grown as a bedroom community to serve employers in the metro area. As a result of residential construction to serve the city's rapid population growth (with a 2009 population estimate of 12,210 -- an increase of 127% over the 2000 Census), the full value has grown at a notable average annual pace of 18.9% between 2004 and 2009. Going forward, officials indicate between 1,200 and 1,500 acres of agriculture land remains within the city limits for future development and annexation opportunities exist to the northeast and west. New development within the city includes Heartland Express Trucking Company's corporate headquarters employing 200 people and representing the city's second largest taxpayer comprising 2.6% of the 2009 value. In addition, the University of Iowa Community Credit Union is relocating its headquarters to North Liberty on a 24-arce tract of land with a $25 million investment. The credit union will initially employ 100 people with a goal to increase personnel to 400 over the long term. Although residential construction has slowed consistent with national trends, statistics show 75 single-family permits have been pulled through July 31, 2010. As the national economy slowly rebounds, the city expects that residential construction will return to previous levels with over 200 single-family permits pulled annually. Residents' income indices and median home values are slightly above state averages, reflective of its role as a community from which professionals commute to both metro areas. Due to the large and diverse employment base in Johnson County anchored by the University of Iowa and its Hospital and Clinics, the unemployment rate of 4.9% in June 2010 continues to trend well below the state's (6.6%) and nation's (9.6%) rates for the same time period.

SOUND FINANCIAL RESERVES EXPECTED TO IMPROVE AT FYE10 AND FYE11

We expect the city's financial position to remain sound due to the presence of healthy reserves and management's use of conservative budgeting practices. Over four of the last five audited fiscal years, the city has posted General Fund surpluses at year-end, bolstering the fund balance to $2.3 million at year-end 2009 (a healthy 34.2% of General Fund revenues). Officials indicate that the improved reserve position is primarily the result of conservative budgeting practices and growth in operating revenues due to higher property values and growth in permit and fees. Favorably, the city employs a reserve policy equal to 25% of General Fund expenditures and does not expect to allow reserves to fall below this level anytime in the medium to long term. Additionally, the General Fund reserve is expected to grow to $3.5 million at fiscal year-end 2010 and nearly $3.9 million at fiscal year-end 2011. Property taxes comprise the bulk of the city's operating revenues at 41.8% of FY09 General Fund revenues. Favorably, the city's sound reserve position is enhanced by the flexibility to fully implement the $0.27 Emergency Levy, which if utilized would generate nearly $150,000 in additional property tax revenues. Furthermore, with voter approval, North Liberty has the option to impose a local option sales tax. The question was previously put before voters in May 2009, but did not pass at that time. In the future if approved, revenues would be available to finance street and road projects.

SOMEWHAT LEVERAGED DEBT POSITION MADE MANAGEABLE BY SUPPORT FOR DEBT SERVICE BY NON-LEVY SOURCES

Inclusive of the current offerings, the city's direct and overall debt ratios are slightly leveraged at 2.9% and 4.0%, respectively. These ratios are net of general obligation debt abated by water and sewer revenues. The city also supports a large amount of debt service requirements with tax increment revenues, historically paying around 52% of outstanding debt with this source. Going forward, officials anticipate borrowing on an annual basis at least through 2014 with $6 million in general obligation debt slated for 2012 and between $5 million and $6 million scheduled for 2013 and 2014. Despite ongoing borrowing plans, we expect the city's debt position to remain manageable due to anticipated growth in the full value and with nearly 90% of direct debt obligations retired in ten years. All of the city's debt is fixed rate and there is no exposure to derivative or swap agreements.

KEY STATISTICS:

2009 population (Estimate): 12,210 (+127.5% increase from 2000 Census)

2009 Full value: $942 million

Full value per capita: $77,124

2000 Median family income: $53,750 (112.0% of state)

2000 Per capita income: $21,339 (108.5% of state)

Johnson County Unemployment (June 2010): 4.9% (6.6% IA; 9.6% US)

Overall debt burden: 4.0% (direct 2.9%)

Amortization of principal (10 years): 89.2%

Fiscal 2009 General Fund balance: $2.3 million (34.2% of General Fund revenues)

Post-sale general obligation debt: $28.5 million

The principal methodology used in rating North Liberty (City of) IA was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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.

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

Nora Wittstruck
Analyst
Public Finance Group
Moody's Investors Service

Emily Robare
Backup Analyst
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 Aa3 RATING TO CITY OF NORTH LIBERTY (IA) $1.73 MILLION G.O. BONDS, SERIES 2010A AND $6.77 MILLION G.O. URBAN RENEWAL BONDS, SERIES 2010B
No Related Data.
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