AUSTIN, Texas - (Business Wire) Fitch Ratings assigns an initial 'AA-' rating to two series of City of Lafayette, Louisiana public improvement sales tax bonds: --$34.3 million series 2009A;
--$27.3 million series 2009B.
In addition, Fitch assigns an 'AA-' rating to the $145.5 million outstanding sales tax bonds on parity with the series 2009A bonds and the $134.1 million outstanding sales tax bonds on parity with the series 2009B bonds. The bonds are scheduled for a negotiated sale the week of July 6, 2009. The Rating Outlook is Stable.
The series 2009A bonds are payable from and secured by revenues generated by a 1% sales tax (the 1961 tax) levied against general commercial activity within the city. The series 2009B bonds are secured by a separate 1% sales tax (the 1985 tax) also levied against general commercial activity in the city, with food and drug purchases exempted. Both series of bonds and all outstanding parity debt have a first lien on the pledged sales tax revenues. Proceeds from both series will finance street, drainage and recreation improvements in the city.
The 'AA-' rating reflects the city's solid financial profile, a diverse and historically sound local and regional economy, and manageable capital needs. Debt service coverage levels are satisfactory at about 2 times (x) maximum annual debt service (MADS), and Fitch also notes that the two sales taxes also are primary general fund revenue sources for the city. Fitch observes that while the pledged sales taxes are susceptible to economic fluctuations, this risk is mitigated to a significant degree by the sizable general fund reserves the city typically maintains. Also, the general fund's reliance on sales tax revenues is limited by provisions in both taxes that limit annual transfers to the general fund to no more than 35% of total collections.
Lafayette is located in south central Louisiana and is the fifth largest city in the state, with an estimated population of more than 123,000. Population growth, which historically had been steady, received a boost in 2005 following Hurricanes Katrina and Rita; the storm forced the evacuation of residents from both southeast and southwest Louisiana to inland areas, including Lafayette. City officials estimate that between 8,000 and 12,000 storm evacuees have resettled permanently in Lafayette. Lafayette Parish and city voters in 1992 approved a consolidation of the city and parish governments, which took effect in 2006. Both levels of government still retain their own taxing authority and debt issuance programs.
Both sales taxes have no expiration date, and the legal provisions for both are standard. Collections have shown steady gains over the past decade, averaging nearly 5% annual increases since fiscal 1999. Receipts jumped nearly 20% in fiscal 2006 due to the influx of hurricane evacuees and the purchasing activity that typically follows natural disasters. Sales tax revenue growth slowed considerably the following two years, registering gains of between 1% and 2% in both fiscal 2007 and 2008. However, Fitch notes as a credit positive that receipts have remained at the elevated post-hurricane levels despite the departure of many storm evacuees. Collections of the 1961 tax totaled nearly $37.8 million in fiscal 2008, while the 1985 tax recorded $32.7 million in receipts. City/parish officials report that collections for fiscal 2009 (which ends Oct. 31) are expected to register a modest decline of 1.5% to 2% from prior year totals.
Direct debt ratios are moderately high at about $2,600 per capita and more than 3% of estimated market value; overall ratios are average. The pace of principal retirement is slightly above average at about 55% in 10 years. Both the 1961 tax and the 1985 tax have been leveraged regularly in recent years. Currently $145.5 million is outstanding that is supported by the 1961 tax, and $134.1 million is outstanding that is supported by the 1985 tax. The city's non-utility capital improvement plan (CIP) appears manageable at about $245 million through 2013. Funding is split evenly between use of available resources and bond proceeds, and the borrowing plan calls for annual sales tax debt offerings between $20 million and $30 million. Street improvements are the largest CIP spending component with nearly 80% of total estimated project costs.
Fitch considers the city's financial profile a positive credit factor. The general fund in recent years has maintained consistently healthy reserve levels, with the unreserved balance ranging between 23% and 36% of spending levels. The fiscal 2008 unreserved general fund balance totaled $25.2 million, or nearly 30% of spending. Sales tax revenues are the principal operating revenue source, typically generating about 30% of the total. Property taxes and utility in-lieu-of-taxes are the two other primary general fund revenue sources, each contributing approximately 20% of total revenues. For fiscal 2009, the city anticipates a decline in general fund reserves by up to $5 million, although actual results likely will better this forecast due the city's conservative budgeting practices. Sales tax receipts for the year are expected to decline a modest 1.5% to 2%.
Lafayette is the economic hub for the eight-parish region known as Acadiana in south-central Louisiana. Major employment sectors include health care, higher education, oil and gas, retail services and agriculture. The city is home to the University of Louisiana at Lafayette, the state's second largest university with enrollment of roughly 16,000, as well as five acute care hospitals. The strength and diversity of the area economy is evidenced by the local unemployment rate, which in recently years has been around 3%. Unemployment totals have risen during the current recession, but at 4% for April 2009 the city's unemployment level is well below the state (5.6%) and national (8.9%) averages for the month. Parish income levels, as measured by per capita personal income, are about 115% of the state average and 105% of the national average. City/parish officials report that the local housing market is weathering the recession fairly well, and recent residential delinquency and foreclosure statistics that are well below national averages support this claim.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Steve Murray, 512-215-3729, Austin
Barbara Rosenberg, 212-908-0731, New York
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
