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

Aaa RATING APPLIES TO $197.6 MILLION OF POST-SALE GOULT DEBT

Municipality
KS

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.

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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.

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

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