CHICAGO - (Business Wire) Fitch Ratings assigns an 'AA+' rating to Sterling Heights, Michigan's $5 million unlimited general obligation (GO) bonds, series 2008. The bonds are scheduled for competitive sale on May 20, 2008. Proceeds of the bonds will finance the costs of repairing, remodeling, expanding and improving three fire stations in the city. The bonds are payable from an unlimited ad valorem tax levied on all taxable property within the city. In addition, Fitch affirms the 'AA+' rating on the city's $43.8 million of outstanding GO debt. The Rating Outlook is Stable.
The 'AA+' rating reflects Sterling Heights' continued economic diversification, financial flexibility, and low debt burden. The city's ability to maintain consistent financial performance through recessionary periods shows its reduced dependence on manufacturing and its effective financial management. The city uses internal resources to finance capital projects resulting in minimal future borrowing needs, thus Fitch expects the city to maintain low debt levels going forward. The city experienced its first decline in total assessed and taxable values in fiscal 2008, largely due to the broad-based decline in market prices of homes in the area. While this decline has not affected the city's financial performance to date, the weakened economic performance of the Detroit metropolitan area represents a credit concern for the city.
The fourth largest city in Michigan, Sterling Heights lies in southwestern Macomb County and is 18 miles north of downtown Detroit. The city's estimated April 2008 population of 126,009 represents a 0.2% annual increase since 2000. The city's March 2008 unemployment rate of 6.1% is below the county, MSA and state levels of 8.0%, 9.1%, and 7.2%, respectively, but still above the national level of 5.2%. Per capita income levels equal 104.2% of the state and 99.4% of the nation.
The city's property tax base grew at a 5.2% average annual rate from 1996 to 2007. However, the city experienced a 7.7% decline in assessed value in 2008 as housing prices declined throughout the region. Furthermore, the value of residential building permits was down 44% for the year, while strong commercial development resulted in an 11.1% overall increase in the total value of permits issued in fiscal 2008. Residential property accounts for 62% of the tax base, with commercial property at 12%. Chrysler (which maintains two plants in the city), Ford Motor Co., and Detroit News are the largest taxpayers, together constituting about 10% of the tax base. Overall, the 10 largest taxpayers represent 12.1% of the city's 2007 taxable value compared with 20% in 1999.
The city maintains a significant level of financial flexibility as its operating tax rate is 1.6 mills below its statutory limit. Furthermore, the tax rate is among the lowest in Macomb County and the Detroit metropolitan area. Management's conservative budgeting practices and policy to maintain balances in excess of 15% of spending have fostered consistent financial operations even during weaker economic times. Consequently, the general fund recorded operating surpluses (before transfers) in each of the past 10 fiscal years. Fiscal 2007 produced a modest $0.7 million surplus as gains in property tax receipts offset declines in state revenue sharing. As a result, the city's general fund balance increased to $15.7 million (19% of spending) in fiscal 2007, compared to $14 million (18.5%) in fiscal 2005. Fitch expects a modest use of general fund reserves for fiscal 2008.
The city's debt levels are very low, with direct debt equaling $239 per capita, or 0.2% of market value. Overall debt levels are low as well, standing at $1,487 per capita, or 1.5% of market value. Future debt issuance is expected to be minimal, since the city continues to fund many capital projects on an internal basis, while state transportation revenues have supported road and bridge maintenance. The city's stand-alone pension systems are overfunded, with its general employees' and police and fire funds having funding ratios of 124.2% and 130.7%, respectively, as of December 2006. Although the city expects a moderate liability resulting from the implementation of Governmental Accounting Standards Board Statement No. 45 regarding its retiree health care benefits, management has taken steps to prepay benefits and negotiate greater cost-sharing for new hires.
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Fitch Ratings
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