Aaa RATING APPLIES TO $197.6 MILLION OF POST-SALE GOULT DEBT
Municipality
KS
Moody's Rating
ISSUE | RATING |
Internal Improvement Bonds, Series 2011A | Aaa |
Sale Amount | $8,800,000 |
Expected Sale Date | 05/02/11 |
Rating Description | General Obligation Unlimited Tax |
|
Internal Improvement Refunding Bonds, Series 2011B | Aaa |
Sale Amount | $6,845,000 |
Expected Sale Date | 05/02/11 |
Rating Description | General Obligation Unlimited Tax |
|
Opinion
NEW YORK, Apr 29, 2011 -- Moody Investors Service has assigned a Aaa rating to the City of Overland Park's
(KS) $8.8 million Internal Improvement Bonds, Series 2011A and $6.8 million
Internal Improvement Refunding Bonds, Series 2011B. Concurrently, Moody has
affirmed the Aaa rating on the city's outstanding general obligation
debt, affecting $197.6 million post-sale GO debt.
SUMMARY RATINGS RATIONALE
The current issues are secured by the city's general obligation unlimited tax
pledge. Proceeds of the 2011A bonds will finance street and capital improvement
projects. Proceeds of the 2011B bonds will refund the city's outstanding GO
Internal Improvement Bonds, Series 2004A for estimated net present value
savings. Assignment and affirmation of Moody highest rating reflects the city's
large and wealthy tax base that plays an integral role in the Kansas City
metropolitan area economy, currently healthy reserve levels despite structurally
imbalanced financial operations with ongoing draws upon reserves planned over
the near term, and affordable debt levels.
STRENGTHS
-Relatively strong regional economy
-Currently healthy General Fund balance despite recent draws
-Revenue raising and expenditure reducing flexibility
WEAKNESSES
-Dependence on economically sensitive revenues contributing to overall revenue
pressures
- Significant Sales and Use tax refunds
-Declining valuations
-Planned use of General Fund reserves to levels below Aaa medians
DETAILED CREDIT SUMMARY
LARGE, WEALTHY TAX BASE PLAYS INTEGRAL ROLE IN KANSAS CITY METROPOLITAN AREA
ECONOMY; RECENT DECLINES IN VALUATION
Despite the slowdown in overall growth, we expect the city's economy to remain
relatively stable due to its role as a regional employment and retail center as
well as wealthy residential community. Located in Johnson County (rated Aaa),
Overland Park plays a significant role in the regional economy of Kansas City
(MO) (Aa2/stable outlook). The city's large $17.7 billion tax base had
previously grown at a steady pace through 2008 with full value increasing at a
five year average rate of 4.1%. Reflecting the ongoing taxbase expansion, the
city's population also grew significantly in recent decades. The city's
population grew 35.5% in 1990, 33.4% in 2000 and an additional 20.3% in
2010. More recently, reflecting declining market value trends, the city's tax
base declined by 1.1% in 2009 and an additional 4.0% in 2010. Officials
attribute the decrease to depreciation of residential and commercial values and
are expecting valuations to remain flat over the near term. The city has a
significant retail and commercial presence, with commercial comprising 37%
of the city's taxbase. Despite the slowdown, officials report some commercial
development continues as evidenced by expansion in the city's retail sector.
American Girl, a subsidiary of Mattel, Inc. (senior unsecured rated Baa2/stable
outlook), opened a retail store in the city's Oak Park Mall in the fall of
2010. The city continues to attract various types of development. The American
Museum of Natural History recently opened a branch in the city, and officials
expect that will spur ancillary commercial and retail development.
Overland Park is home to the offices of numerous corporate
headquarters, including Sprint Nextel Corporation (senior unsecured rated
Ba3/negative outlook) with 7,300 employees and Black & Veatch
Engineering Consultants with 3,247 employees. The telecommunications industry
experienced a substantial contraction in the workforce in 2009, resulting in
significant layoffs. Sprint's campus remained partially vacant due to the
reduced workforce. However, buildings on the campus have been recently leased to
new tenants including CenturyLink, Inc. (Baa3/negative outlook), Apria
Healthcare Group, Inc. (Ba3/negative outlook), JP Morgan (Aa3/negative
outlook), and various other medium-sized businesses which continue to bring jobs
to the site. In addition, Black & Veatch recently announced plans to nearly
rebuild and expand its corporate facility with expectations for future job
growth. Evidencing the region's relatively strong economy, the city's
unemployment rate of 6.6% for February 2011 continues to remain below the
state's of 7.2% and the nation's of 9.5% for same time period. Resident wealth
indices exceed state medians, with per capita income and median family incomes
at 156.4% and 155.5% of the state, respectively.
CURRENTLY HEALTHY RESERVE LEVELS EXPECTED TO DECLINE DUE TO ONGOING
REVENUE PRESSURES AND USE TAX REFUNDS
The city's financial operations are expected to remain structurally
imbalanced in the near term due to continued revenue pressures and ongoing
refunds of use taxes collected in prior years. The city's General Fund balance
grew steadily through fiscal 2007, closing the year with a sizable General Fund
balance of $67.5 million, or an ample 62.8% of General Fund revenues, which
was more than double the state median for Kansas cities. Notably, this trend
reversed beginning fiscal 2008 when the city posted consecutive significant
operating deficits of $14.7 million and an additional $11 million in fiscal
2009. Officials indicate the deficits primarily occurred due to Use Tax refunds
owed to the Kansas Department of Revenue. The city paid the liability of $8.9
million in fiscal 2008 and an additional $6 million liability in fiscal 2009.
Combined with revenue shortfalls and planned capital expenditures, the General
Fund declined to $41.8 million, or a still strong 45.5% in fiscal 2009. Revenue
shortfalls are primarily due to declines in economically sensitive revenues
including sales taxes, building permits, and investment income. In fiscal 2010,
this negative trend was exacerbated by an additional $6 million Use Tax refund
liability. As a result, unaudited fiscal 2010 numbers indicate the city will
close with a General Fund balance of $28.5 million, or a narrower 33% of
revenues. Notably, this reflects a negative $5 million variance from the
original budget.
Going forward, the city expects to absorb expected continued sluggish revenue
growth through expenditure reductions and use of reserves. Year-to-date, the
city has implemented approximately $70 million in expenditure reductions which
include the elimination of 70 positions, wage freezes, and delays in capital
projects. As sales tax revenues are likely to remain pressured, the city
expects to draw upon General Fund reserves by $8 million in fiscal 2011 to an
estimated $19.2 million, or approximately 20% of revenues. While the city's
current reserves levels remain in alignment with Aaa rated cities, depletion of
reserves below projected fiscal 2011 levels could pressure the city's rating as
reserves at this level would no longer remain consistent with rating category
peers. Throughout the remaining five-year financial forecast, officials expect
to continue to draw upon undesignated General Fund reserves down to 14% of
budgeted expenditures (the city's reserve policy floor) through fiscal 2013. The
city's undesignated General Fund balance was $28.5 million, or 32.7% of
revenues at the close of fiscal 2009. The city has historically posted
positive variances in General Fund performance, with the exception of 2010. The
ability of the city to maintain reserves at current levels will be considered in
future credit reviews. Continued negative variances, significant use of
reserves, and failure to regain structural balance could place downward pressure
on the city's credit quality.
Healthy reserves provide an important cushion for the city's dependence on
economically sensitive revenues. The city's largest revenue source is sales tax,
which comprised a significant 42.5% of operating revenues in fiscal 2009 and
approximately 40.5% in fiscal 2010. The city has experienced significant revenue
pressures due to declining sales tax collections as well as use tax
refunds. Annual sales tax revenue collections increased at a strong five year
average annual rate of 7.6% between 2002 and 2006. However, beginning 2007 sales
tax collections began to decline, with a 2% decline in 2007 and a significant
16.1% decline in 2008. The major decline in 2008 resulted from an overall
decline in collections as well as an increase in the amount withheld by the
state for use tax refunds. State tax collections in fiscal 2010 increased
2.2%; however, additional Use Tax refunds of $6 million more than anticipated
resulted in overall decline sales/use tax collections of $3.3 million.
Year-to-date, officials report collections are tracking better than budget and
are projecting a 2% increase for the year. Financial projections assume 2%
annual increases in the near-term. In addition to the sales tax, the city is
dependent on other economically sensitive revenues including charges for
services, licenses & permits, and franchise taxes. Combined, economically
sensitive revenue sources comprised over 85% of General Fund revenues in fiscal
2009. Property taxes constitute a lesser 10.2% of the city's operating
revenues. While the city is not restricted by state or local statutory
property tax levy limits, the city reports no firm plans to increase the levy
but may consider an increase for fiscal 2012. The city also has the option to
approach voters to increase the sales tax to three cents. Any inability to
absorb continued declines in revenues will continue to pressure the city's
finances.
AFFORDABLE DEBT LEVELS
The city's debt levels are expected to remain manageable given its
sizeable taxbase and moderate future borrowing plans. At 0.1% and 3.5%,
respectively, the city's direct and overall debt burdens are below state
medians. Principal amortization is average, with 71.1% of the principal on
general obligation debt retired in ten years. A portion of the city's
debt service is supported by Transient Guest Tax revenues. Six percent of the
city's Transient Guest Tax revenues are dedicated to debt service, somewhat
mitigating the impact on the general debt service levy. In May 2007, the city
council approved an increase in the Transient Guest Tax rate from 6% to 9%, with
the additional dollars allocated to fund tourism related capital projects,
including the construction of the soccer complex and improvements to an
entertainment district, reducing reliance on issuing bonds to finance
capital projects. In addition, in January 2008, city voters approved an
extension to the 1/8 cent sales tax, which funds citywide street improvements.
Set to expire in 2014, this tax further reduces the city's reliance on debt to
fund capital improvements. The city plans to continue to issue debt annually for
its CIP projects and expects to issue approximately $10 million in 2012, and is
expected to significantly decrease beginning 2013. All of the city's debt is
fixed rate and there is no exposure to derivative or swap contracts.
WHAT COULD CHANGE THE RATING DOWN
-Continued draws upon General Fund reserves
-Significant deterioration in taxbase
-Continued reliance on economically-sensitive revenues with performance falling
short of budgeted assumptions pressuring financial operations
KEY STATISTICS
2000 Census population: 149,080 (33.4% increase from 1990)
2010 Census population: 179,377 (20.3% increase from 2000)
2010 Full value: $17.7 billion (0.6% average annual increase from 2006)
2010 Full value per capita: $98,497
1999 Per capita income: $32,069 (156.4% of state)
1999 Median family income: $77,176 (155.5% of state)
1999 Median home value: $162,800 (195.0% of state)
Fiscal 2009 General Fund balance: $41.8 million (45.5% of revenues)
Fiscal 2010 Unaudited General Fund balance: $30.1 million (34.6% of revenues)
Direct debt burden: 1.1%
Overall debt burden: 3.5%
Principal amortization (10 years): 71.1%
Post-sale general obligation debt outstanding: $197.6 million
PRINCIPAL METHODOLOGY
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 Investors Service information,
and confidential and proprietary Moody Analytics information.
Moody 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
Soo Yun Chun
Analyst
Public Finance Group
Moody's Investors Service
Rachel Cortez
Backup Analyst
Public Finance Group
Moody's Investors Service
Henrietta Chang
Senior Credit Officer
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 OVERLAND PARK'S (KS) $8.8 MILLION INTERNAL IMPROVEMENT BONDS, SERIES 2011A AND $6.8 MILLION INTERNAL IMPROVEMENT REFUNDING BONDS, SERIES 2011B