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MOODY'S ASSIGNS Aaa RATING TO CITY OF LEE'S SUMMIT (MO) $12.0 MILLION GO BONDS, SERIES 2011A

04 May 2011

Aaa RATING APPLIES TO $34.0 MILLION OF TOTAL GO DEBT, INCLUDING CURRENT OFFERING

Municipality
MO

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2011-A

Aaa

  Sale Amount

$12,000,000

  Expected Sale Date

05/05/11

  Rating Description

General Obligation Unlimited Tax

 

Opinion

NEW YORK, May 4, 2011 -- Moody's Investors Service has assigned a Aaa rating to the City of Lee's Summit's (MO) $12.0 million General Obligation Bonds, Series 2011A. Concurrently, Moody's has affirmed the Aaa rating on the city's outstanding general obligation debt and the Aa2 rating on the city's outstanding certificate of participation debt. Lee's Summit has $34 million in total general obligation debt, including the current offering, and $15 million in total certificate of participation debt outstanding.

SUMMARY RATINGS RATIONALE

Proceeds of the Series 2011A bonds will finance various capital projects, including the creation of a new police training facility, improvements to sidewalks and upgrades to emergency service radios. The current offering represents the first issuance of $37.4 million in general obligation debt that was authorized by voters in November 2010. The current bonds are secured by the city's general obligation unlimited tax pledge, and debt service is to be paid with property tax revenues. Affirmation and assignment of the Aaa general obligation rating reflects the city's large and diverse tax base, which is favorably located in the Kansas City (general obligation rated Aa2/stable outlook) metropolitan area; satisfactory financial operations despite volatile sales tax trends; and debt levels that are expected to remain manageable. Affirmation of the Aa2 rating on the City of Lee's Summit certificate of participation debt reflects the city's general obligation credit characteristics, the annual risk of non-appropriation, and the non-essential nature of the financed projects (park improvements and the construction of airport hangars).

STRENGTHS

-Strong reserve levels and trends

-Conservative management practices including multi-year financial and capital forecasts

-Above-average socioeconomic profile

CHALLENGES

- Unemployment rate tracks above state and national levels

- Assessed valuation projected to decline by 6% in 2011

DETAILED CREDIT DISCUSSION

LARGE, DIVERSE TAX BASE FAVORABLY LOCATED IN KANSAS CITY METROPOLITAN AREA; ASSESSED VALUATION EXPECTED TO CONTINUE TO EXPERIENCE MODEST DECLINES

Despite recent modest declines in assessed valuation that followed years of consecutive growth, we believe that the city's location within the Kansas City metropolitan area will continue to support tax base growth and a relatively healthy economy in the long term. The city's current full value of $8.0 billion is substantial and follows significant development that occurred during the past decade. In 2010, valuation declined by 1.0%, reversing an eight year trend of increases. In 2011, city officials project a 6% decline in assessed valuation due to declines in valuation of existing real property. The city has experienced a significant decline in residential building permits (111 in 2009 vs. 1,341 in 2005), however, from 2009 to 2010, the number of residential building permits has increased to 170. Lee's Summit's population has increased rapidly, from 16,230 in 1970 to a current estimated population of 96,163. The city's diverse tax base benefits from both residential and commercial properties, with the telecommunication, health care, and retail industries represented among the city's top taxpayers. Residential income levels exceed state and national medians.

SATISFACTORY FINANCIAL OPERATIONS EXPECTED TO CONTINUE

We expect the city's satisfactory financial position to continue due to conservative financial management practices that include multi-year financial projections and codified reserve policies. Following the receipt of back taxes from telecommunication companies, the city posted a $2.0 million General Fund operating surplus in fiscal 2009, which increased the General Fund balance to $23.2 million from $21.2 million. The city expects to receive approximately $1 million per year in additional telecommunications taxes going forward. In fiscal 2010, General Fund reserves increased to $27.3 million due to additional telecommunication tax revenue, as well as mid-year expenditure adjustments. Officials have not and do not expect to implement furlough days or lay off workers in order to adjust for revenue pressures. Officials expect the General Fund balance in fiscal 2011 to track that of 2010. The city's five-year financial plan calls for spending down General Fund reserves to 33% of revenues, which is still above the minimum General Fund balance level (25%) called for in city policy.

Due to receipt of back taxes from telecommunications companies, property taxes comprised the General Fund's main revenue stream in fiscal 2010, representing 34.7% of revenues. Prior to fiscal 2008, sales taxes were the city's top revenue source, comprising 36% of General Fund revenues in fiscal 2007. The city receives revenues from four sales taxes that are dedicated to general operations, transportation, parks, and capital projects. Annual sales tax collections declined by 0.8% in 2009 and 4.7% in 2010. For fiscal 2011, management budgeted for a 4% increase in sales tax revenues from fiscal 2010 actual collections. Year-to-date collections are in line with budget. Given the recent pressures with this economically sensitive revenue, Moody's believes that the importance of retaining sound reserve levels is underscored.

DEBT LEVELS EXPECTED TO REMAIN MANAGEABLE

Despite Lee's Summit's high rate of population growth, the city's direct debt burden is low at 0.6% of full value. The above-average overall debt burden of 3.0% of full value largely reflects the borrowing of overlapping school districts. Principal amortization of the city's direct debt is sound, with 83.3% of all debt retired in ten years. Officials report the city plans to issue the remaining $11.6 million portion of this voted issue in 2012 to fund public safety projects and street and road improvements. The city also plans to issue $3.1 million in 2013 and $10.6 million in 2014 for various capital projects. Despite future borrowing plans, we believe that the city's debt profile will remain moderate due largely to a rapid rate of retirement. All of Lee's Summit's outstanding debt is fixed rate, and the city is not party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - DOWN

-Significant decline in property values or weakening of the county's demographic profile

-Substantial declines in the city's fund balances and/or liquidity

KEY STATISTICS

2000 census population: 70,700

2010 census population: 93,167

2010 full market valuation: $8 billion (6.7% average annual increase since 2005)

2010 full value per capita: $85,358

Per capita income as % of U.S. (1999): 124.6%

Median family income as % of U.S. (1999): 141.3%

County unemployment rate (March 2011): 10.1%

FY 2010 General Fund balance (GAAP): $27.3 million (47.5% of revenues)

Debt burden: 3.0% (0.5% direct)

Principal amortization (10 years): 81.2%

Post-Sale GOLT debt outstanding: $34.0 million

Certificate of participation debt outstanding: $15 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.

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, 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.

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

Megan Roudebush
Analyst
Public Finance Group
Moody's Investors Service

Mark G. Lazarus
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


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

MOODY'S ASSIGNS Aaa RATING TO CITY OF LEE'S SUMMIT (MO) $12.0 MILLION GO BONDS, SERIES 2011A
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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