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MOODY'S ASSIGNS Aa3 RATING TO CITY OF NORTH LIBERTY'S (IA) $790,000 GO BONDS, SERIES 2011A AND $5.8 MILLION GO URBAN RENEWAL BONDS, SERIES 2011B

18 Aug 2011

Aa3 RATING APPLIES TO $28.4 MILLION OF POST-SALE GOULT DEBT

Municipality
IA

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2011A

Aa3

  Sale Amount

$790,000

  Expected Sale Date

08/23/11

  Rating Description

General Obligation

 

General Obligation Urban Renewal Bonds, Series 2011B

Aa3

  Sale Amount

$5,810,000

  Expected Sale Date

08/23/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Aug 18, 2011 -- Moody's Investors Service has assigned a Aa3 rating to the City of North Liberty's (IA) $790,000 General Obligation Bonds, Series 2011A and $5.8 million General Obligation Urban Renewal Bonds, Series 2011B. Concurrently, Moody's has affirmed the Aa3 rating on the city's outstanding general obligation debt. Post-sale, the city will have $28.4 million of general obligation unlimited tax debt outstanding.

SUMMARY RATING RATIONALE

Debt service repayment on both series of bonds is secured by the city's general obligation unlimited tax pledge. Proceeds of the Series 2011A bonds will be used to refund the city's Series 1996A bonds for estimated savings, as well as provide $610,000 in new money to finance street improvements. Proceeds of the Series 2011B bonds will be used to finance improvements to streets and utility systems, as well as the acquisition of land for a new City Hall facility. The Aa3 rating reflects the city's moderately-sized tax base in eastern Iowa, stable financial operations supported by healthy reserves, and manageable debt burden with rapid repayment of principal.

STRENGTHS

- Ongoing growth in the city's taxable valuation and local population

- Healthy financial reserves in the General Fund

CHALLENGES

- Limited flexibility to raise additional revenue outside of the general levy cap

DETAILED CREDIT DISCUSSION

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

The city's tax base is expected to exhibit modest growth over the near to medium term, given recent trends in appreciation, population growth, and its favorable location. Located along I-380 in Johnson County (general obligation rated Aa2), the city is approximately equidistant between Iowa City (Aaa) and Cedar Rapids (Aaa). The city has continued to grow as a bedroom community of the two metropolitan areas, experiencing a 149% increase in population between the 2000 and 2010 census periods. At the same time, the city's tax base, valued at $998 million, has grown at an average annual rate of 12.6% over the past five years. While growth has moderated in the most recent years, current year development is set to outpace that of last year. Officials report that over 1,000 acres of agricultural land near the city remains available for future development. Future commercial development includes the University of Iowa Community Credit Union's plan to break ground this fall on a $30 million investment and expansion of its headquarters. With the expansion, the credit union is expected to employ up to 150 new employees over the short term, with the addition of up to 400 new employees over the longer term. Additional economic stability is provided by the city's proximity to Iowa City, which is home to the University of Iowa (30,000 students) and its associated hospital and clinics. Together, the university and hospital employ approximately 27,000 people. Johnson County's unemployment rate of 4.9% in June 2011 remains below that of the state (6%) and nation (9.3%) for the same time period. Resident income levels approximate those of the nation, with per capita and median family income equivalent to 99% and 107% of national figures, respectively, according to the 2000 census.

STABLE FINANCIAL OPERATIONS CHARACTERIZED BY HEALTHY RESERVES

The city's financial operations are expected to remain stable due to a history of maintaining favorable reserve levels and adherence to a formal reserve policy. The city closed fiscal years 2008 through 2010 with annual General Fund operating surpluses, increasing the General Fund cash balance from $1.9 million to $3.5 million. The year-end 2010 balance is equivalent to 43.4% of revenues. Officials report that, of the total $3.5 million cash balance, approximately $1.6 million was entirely unrestricted. While audited financial information is not yet available for fiscal 2011, officials report that the city's General Fund cash reserves increased approximately $654,000 to an estimated year-end balance of $4.14 million, of which $2 million is unrestricted. Officials have budgeted for a further increase in fiscal 2012, with an expectation that total General Fund reserves will grow to approximately $4.26 million. Unrestricted cash reserves are expected to continue to exceed the 25% of budgeted expenditures prescribed by the city's fund balance policy.

Property taxes represent the city's largest revenue source, comprising 47% of fiscal 2010 General Fund revenues. The city is taxing at its General Fund levy limit of $8.10 per $1,000 of assessed valuation, but retains the ability to implement the $0.27 Emergency Levy, which would generate an estimated $161,000 of additional revenue. The city could also levy a gas and electric franchise fee of up to 5% to generate additional revenues, if needed.

MANAGEABLE DEBT BURDEN WITH RAPID PRINCIPAL AMORTIZATION

We anticipate the city's debt profile will remain manageable due to rapid principal amortization and expected tax base growth. At 2.8% and 3.9% of full valuation, respectively, the city's direct and overall debt burdens exceed state and national medians for rated cities. Favorably, amortization of the city's outstanding debt is rapid, with 94% of principal expected to be repaid within ten years. Officials report that the city has no plans to issue additional debt over the near term. All of the city's outstanding debt is fixed rate, and the city is not a party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - UP

- Significant growth in the city's tax base and strengthening of the demographic profile

- Maintenance of healthy financial reserves and liquidity

WHAT COULD CHANGE THE RATING - DOWN

- Deterioration of the tax base or weakening of the demographic profile

- Material declines in the city's financial reserves to level inconsistent with similarly-rated entities

KEY STATISTICS

2010 Census population: 13,374 (149% increase since 2000)

2010 Full valuation: $998 million (12.6% five-year average annual increase)

Estimated full value per capita: $74,657

2000 per capita income (as % of U.S.): 98.9%

2000 median family income (as % of U.S.): 107.4%

Johnson County unemployment (June 2011): 4.9% (Iowa: 6%; U.S.: 9.3%)

Fiscal 2010 General Fund balance: $3.5 million (43.4% of revenues)

Overall debt burden: 3.9% (2.8% direct)

Principal amortization of general obligation debt (10 years): 94%

Post-sale general obligation debt outstanding: $28.4 million

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.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Analysts

Matthew Butler
Analyst
Public Finance Group
Moody's Investors Service

Emily Robare
Backup Analyst
Public Finance Group
Moody's Investors Service

Edward Damutz
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa3 RATING TO CITY OF NORTH LIBERTY'S (IA) $790,000 GO BONDS, SERIES 2011A AND $5.8 MILLION GO URBAN RENEWAL BONDS, SERIES 2011B
No Related Data.
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