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MOODY'S ASSIGNS Aa3 RATINGS TO CITY OF BEND, OR, FULL FAITH AND CREDIT OBLIGATIONS, 2010C (FEDERALLY TAXABLE RECOVERY ZONE ECONOMIC DEVELOPMENT OBLIGATIONS) AND FULL FAITH AND CREDIT REFUNDING OBLIGATIONS, 2010D (TAX-EXEMPT)

15 Nov 2010

$66.7 MILLION OF DEBT AFFECTED, INCLUDING CURRENT OFFERINGS

Municipality
OR

Moody's Rating

ISSUE

RATING

Full Faith and Credit Obligations, Series 2010C (Federally Taxable Recovery Zone Economic Development Obligations)

Aa3

  Sale Amount

$13,030,000

  Expected Sale Date

11/17/10

  Rating Description

Limited Tax General Obligation Bonds

 

Full Faith and Credit Refunding Obligations, Series 2010D (Tax-Exempt)

Aa3

  Sale Amount

$2,135,000

  Expected Sale Date

11/17/10

  Rating Description

Limited Tax General Obligation Bonds

 

Opinion

NEW YORK, Nov 15, 2010 -- Moody's Investors Service has assigned Aa3 ratings to the City of Bend, Oregon, Full Faith and Credit Obligations, Series 2010C (Federally Taxable Recovery Zone Economic Development Obligations) in the amount of $13.0 million and Full Faith and Credit Refunding Obligations, Series 2010D (Tax-Exempt) in the approximate amount of $2.1 million. Moody's has also affirmed the Aa3 rating on the city's outstanding parity debt totaling $51.5 million as well as the city's Aa2 issuer rating. The current offerings are secured by the city's full faith and credit pledge of non-restricted general revenues and other legally available resources, which are not subject to appropriation. Bond proceeds will finance capital improvements to the city's water and sewer systems and refund certain maturities of the city's outstanding Water Revenue Bonds, Series 2000.

RATING RATIONALE

The Aa3 rating primarily reflects the legal security of the bonds and the general credit characteristics of the city, including a large but contracting tax base, balanced financial operations with adequate reserves, and a manageable debt profile.

REAL MARKET VALUES DECLINE SIGNIFICANTLY FOR LARGE, CENTRAL OREGON CITY

The City of Bend is located in central Oregon and serves as the seat of Deschutes County (Aa2 UTGO rating). Local economic activity is diverse and includes government, health care, and manufacturing industries. Amid a sharp downturn in real estate markets and strained economic conditions nationally, the city's tourism and housing-related industries have struggled, resulting in significant job losses. As of August 2010, the unemployment rate in Deschutes County was 13.0%, which was well above state (10.3%) and national (9.5%) levels.

The city's large tax base grew significantly prior to the national real estate downturn due substantially to aggressive new construction and appreciation in market values for existing properties. Growth in the city's tax base was rapid in years 2004 through 2009 to a peak real market valuation of $16.9 billion. Over the period, real market value grew at an average annual rate of 19.9% annually and included significant year-over-year growth of 39.2% and 30.4% in 2007 and 2008, respectively. However, the city's real market value contracted significantly to a still sizable $10.8 billion following annual declines of 12.1% and 27.5% in 2010 and 2011, respectively. Despite recent declines, the city's tax base remains substantially larger than many similarly-rated cities nationally.

Growth in the city's taxable assessed valuation historically has been limited by property tax caps for unimproved properties to annual increases of 3.0%, in accordance with the state's Measure 50 provisions. Nevertheless, gains in assessed value averaged 9.8% in years 2004 through 2009, reflecting a strong pace of new development. In 2010, assessed value growth remained positive at 4.1% over the prior year, but annual growth slowed to only 1.1% in 2011. Growth in assessed value for 2011 was below typical levels consistent with Measure 50 provisions because real market values for an estimated 20% of properties fell below their respective assessed values. Looking forward, officials estimate that the tax base will begin to stabilize in 2012 with expectations that assessed valuation will grow sluggishly by only 1.0% and real market values will be flat relative to the current year.

As of the 2000 census, wealth measures improved relative to state and national levels as per capita and median family incomes represented 100.2% and 98.7% of national levels, respectively. Full value per capita is $131,168 for 2011 and historically is above state and national medians.

ADEQUATE RESERVE LEVELS; NEAR-TERM BUDGETARY CHALLENGES

The city's financial operations have been historically well-balanced and reflect generally conservative budgeting practices. General fund reserves declined overall in recent years but averaged an adequate 23.2% of general fund revenues in fiscal years 2006 to 2009. Property taxes remained the general fund's largest resource as of fiscal 2009, representing approximately 59.9% of total general fund revenues. The city has maintained conservative budget projections while also reducing expenditures by decreasing employee headcount and also maintaining a hiring freeze since 2008.

Officials remain committed to maintaining healthy general fund reserves despite a challenging economic environment. For fiscal 2010, the city estimates that general fund reserves will amount to 23.9% of general fund revenues ($8.1 million). Also of note, the city established a separate stabilization fund with $1.1 million that could be utilized to support operations. For fiscal 2011, the city reported that general fund reserves year-to-date represent an estimated 20.0% of budget; revenues and expenditures are generally in-line with expectations and softness in current property tax revenue collections is offset by delinquent receipts.

Officials expect to continue targeting general fund reserves of at least 20.0% of budget, in accordance with historic operating objectives. Challenges facing the city in the medium-term include expansion of public safety and other services, as well as rising pension contribution requirements. Currently, PERS contributions account for an estimated 14.0% of payroll; with significant investment losses in 2008, PERS contribution rates will increase to an average 18% of payroll ($5.8 million) for fiscal years 2012 and 2013. Moody's expects that the city's financial position will remain sound given conservative financial management and proactive planning to manage near-term budgetary challenges.

LOW DEBT BURDEN; ADDITIONAL BORROWING PLANS OVER NEXT FIVE YEARS

Moody's expects the city's debt profile to remain manageable given a low direct debt burden and additional borrowing plans. Payout of principal for the city's direct obligations is slow at 52.1% in ten years. New money bond proceeds represent the first phase of a five-year plan to upgrade infrastructure for the city's water and sewer systems; the total capital improvement plans for water and sewer are estimated at $165.1 million and will likely be financed with water and sewer rate increases, additional debt, grants and state loans. Previous plans for a public works building, development service center, and city hall have been postponed indefinitely.

Although the current offerings are secured by the full faith and credit of the city, officials anticipate that debt service will be funded by revenues from the city's water and sewer enterprises, both of which currently carry Aa2 long-term revenue ratings from Moody's. The Series C obligations are structured as a federally taxable Recovery Zone Economic Development Obligations that include a federal subsidy to the city that is equivalent to 45.0% of interest payable on the bonds.

What could move the rating-UP

- Significant improvement in socioeconomic measures

- Protracted strengthening of the city's financial position

What could move the rating-DOWN

- Further significant contraction of the district's tax base

- Significant deterioration of the district's financial position

KEY STATISTICS

Estimated population: 82,280

2010 full value: $10.8 billion

Average annual growth in full value (2006-2011): 3.3%

2011 full value per capita: $131,168

1999 per capita income: $21,624 (100.2% of U.S.)

1999 median family income: $49,387 (98.7% of U.S)

Direct debt burden: 0.5%

Overall debt burden: 2.2%

Payout of principal (10 years): 52.1%

Fiscal 2009 total general fund balance: $6.8 million (19.8% of general fund revenues)

Other postemployment benefits (OPEB) liability, 2009: $22.8 million (UAAL)

PRINCIPAL METHODOLOGY AND LAST RATING ACTION

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

The last rating action with respect to the City of Bend, Oregon was on February 1, 2010 when a municipal scale rating of A1 was assigned to Full Faith and Credit Obligations, Series 2010A and Full Faith and Credit Refunding Obligations, Series 2010B. That rating was subsequently recalibrated to a global scale rating of Aa3 on May 1, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, 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

Patrick Liberatore
Analyst
Public Finance Group
Moody's Investors Service

Matthew A. Jones
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


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MOODY'S ASSIGNS Aa3 RATINGS TO CITY OF BEND, OR, FULL FAITH AND CREDIT OBLIGATIONS, 2010C (FEDERALLY TAXABLE RECOVERY ZONE ECONOMIC DEVELOPMENT OBLIGATIONS) AND FULL FAITH AND CREDIT REFUNDING OBLIGATIONS, 2010D (TAX-EXEMPT)
No Related Data.
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