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HomeMy WebLinkAbout3.a. Presentation of Bond Credit Rating Upgrade PlaqueAGENDA ITEM: Presentation of Bond Credit Rating Upgrade Plaque AGENDA SECTION: Department Head Report PREPARED BY: Jeff May, Finance Director AGENDA NO. 34„ ATTACHMENTS: Moody's Rating Notification Letter APPROVED BY: P0 1 RECOMMENDED ACTION: 4 ROSEMOUNT CITY COUNCIL City Council Regular Meeting: October 7, 2008 EXECUTIVE iSUMMARY Ms. Terri Heaton, from Springsted, will be here this evening to present a plaque acknowledging the City of Rosemount's bond credit rating upgrade. This credit rating upgrade actually occurred last October when the City was in the process of issuing debt and was going through the normal bond rating process. The City's rating went from Al to Aa3. As detailed in the notification letter there were many factors involved in the City's upgrade and we had actually been advocating for an upgrade for a couple of years. The City's last upgrade occurred in July of 2002 when we went to the Al rating. Moody's Investors Service New Issue: Rosemount (City of) MN Global Credit Research New Issue 1 OCT 2007 MOODY'S UPGRADES TO Aa3 FROM Al THE RATING ON THE CITY OF ROSEMOUNT'S (MN) OUTSTANDING GENERAL OBLIGATION DEBT ASSIGNS Aa3 RATING TO $1.2 MILLION GO WATER REVENUE BONDS, SERIES 2007A, AND $450,000 GO EQUIPMENT CERTIFICATES OF INDEBTEDNESS, SERIES 2007B Municipality MN Moody's Rating ISSUE RATING General Obligation Water Revenue Bonds, Series 2007A Aa3 Sale Amount $1,210,000 Expected Sale Date 10/02/07 Rating Description General Obligation Unlimited Tax General Obligation Equipment Certificates of Indebtedness, Series 2007B Aa3 Sale Amount $450,000 Expected Sale Date 10/02/07 Rating Description General Obligation Unlimited Tax Opinion NEW YORK, Oct 1, 2007 Moody's Investors Service has assigned a Aa3 rating to the City of Rosemount's (MN) $1.2 million General Obligation Water Revenue Bonds, Series 2007A, and $450,000 General Obligation Equipment Certificates of Indebtedness, Series2007B. Concurrently, Moody's has upgraded to Aa3 from Al the rating on the city's outstanding general obligation debt. Rosemount has $28.0 million of outstanding general obligation debt, including the current offerings. The Series 2007A bonds and the Series 2007B certificates are secured by the city's general obligation unlimited tax pledge. Debt service on the Series 2007A bonds is to be paid with net revenues of the city's water utility, and bond proceeds will finance improvements to the water system, including the construction of a new well. Debt service on the Series 2007B certificates is to be paid with property taxes, and certificate proceeds will finance the acquisition of various items of capital equipment for the city's public safety and public works departments. The Aa3 rating assignment and upgrade reflect the city's rapidly growing and slightly concentrated tax base that is favorably located in the Twin Cities metropolitan area; well- managed financial operations with healthy reserves; and debt levels that are expected to remain affordable. RAPIDLY GROWING AND SLIGHTLY CONCENTRATED TAX BASE FAVORABLY LOCATED IN TWIN CITIES METROPOLITAN AREA Located in northern Dakota County (general obligation rated Aaa) in the southern suburbs of the Twin Cities metropolitan area, the City of Rosemount has experienced rapid growth over the past several decades, both in population and full value. The city's population has increased from 1,337 in 1970 to 20,468 in 2006. Full value growth has also been rapid: the 2006 full value of $2.5 million follows a 17% average annual increase since 2001 (compared to a median average annual growth rate of 12% for Minnesota cities and 8% for cities nationwide). Moody's expects tax base growth to continue, driven in part by mixed -use redevelopment efforts in a tax increment district that was created in 2004 in the city's downtown area. New residential development also continues to drive tax base growth, as the city is favorably located within commuting distance to employment centers throughout the metropolitan region. Young families in particular are attracted to the city, as evidenced by the above average percentage of children in the city's population. The per capita income level of 100% of the state (which is relatively low for the Twin Cities region) reflects the younger population, but the median family income level of 121% of the state and the median home value of 125% of the state are both sound. Rosemount's tax base is somewhat concentrated, with an oil refinery owned by Flint Hills Resources (issue rated Al /stable outlook) representing 9% of the city's assessed valuation. Moody's notes the elevated credit risk associated with this degree of dependence on a single taxpayer, as well as the potential negative impact of the refinery on future development in the surrounding areas of the city. However, Rosemount has been home to the refinery since 1955, and its oil producing capacity has since grown tenfold. Due to sustained demand for gasoline and diesel fuel, another expansion for the refinery is scheduled for the fall of 2007. Continued expansions of the plant, which employs 790 people and is Minnesota's biggest source of gasoline, evidence Flint Hills' commitment to remaining in Rosemount. WELL- MANAGED FINANCIAL OPERATIONS WITH HEALTHY RESERVES Moody's expects the city's healthy finances to continue, supported by well- managed operations and ample reserves. Following several consecutive years of operating surpluses, the city's General Fund balance grew from $4.7 million in fiscal 2003 to $5.8 million in fiscal 2006.The fiscal 2006 fund balance equaled 68% of General Fund revenues, which is well above the median of 49% for Minnesota cities. City policy calls for the maintenance of General Fund reserves equal to 55% of the subsequent year's budgeted General Fund revenues. Amounts in excess are typically transferred to the city's Capital Projects Fund, which carried a balance of $5.6 million at the close of fiscal 2006. Due to a slowdown in the housing market, General Fund building permit revenues have declined somewhat in recent years, so the city did not transfer monies from the General Fund to the Capital Projects Fund in 2006 and does not plan to do so in 2007. However, officials report that General Fund reserves should remain level in 2007 and 2008. Favorably, the city is primarily dependent on locally- generated revenues for general operations, with property taxes representing 67% of General Fund revenues. Intergovernmental aid comprises just 3% of General Fund revenues, which insulates the city from the impact of fluctuations in state aid that have occurred in recent years. The city's Port Authority Tax Increment Fund posted a deficit fund balance of $2.8 million in fiscal 2006, but officials report that this deficit balance will be addressed with proceeds from tax increment bonds that will be issued in 2008. Revenues that should be generated from redevelopment projects in the downtown tax increment district are expected to be used to repay the bonds. DEBT LEVELS EXPECTED TO REMAIN AFFORDABLE Moody's believes the city's low debt levels will remain affordable due to expectations of continued tax base growth and limited future borrowing needs. At 0.8% and 1.7 the city's direct debt position and overall debt burden are both below state and national medians. The debt levels are particularly low for a city with such a rapid pace of growth. Payout is aggressive, with 91 of all- debt retired in ten years (compared to a median rate of 71% for cities nationwide and 74% for cities in Minnesota). Minnesota cities benefit from the state's statutory requirement to levy 105% of the annual debt service levy for tax- backed general obligation debt, providing excess revenues to offset property tax delinquencies. Future debt plans include issuing $3.5 million to $5 million of tax increment bonds in 2008 to fund downtown redevelopment projects and issuing approximately $1 million in bonds in late 2008 or early 2009 to fund water system improvements. Pending voter approval, the city may also issue between $5 million and $10 million of bonds to construct an athletic facility on 57 acres of land donated to the city by-Flint Hills Resources. KEY STATISTICS 2000 census population: 14,619 (a 67% increase from 1990) 2006 estimated population: 20,468 (a 40% increase from 2000) 2006 full value: $2.5 billion 2006 full value per capita: $120,667 1999 per capita income: $23,116 (100% of state) 1999 median family income: $68,929 (121% of state) Dakota County unemployment rate: 4.1% (June 2007) Fiscal 2006 General Fund balance: $5.8 million (68% of General Fund revenues) Direct debt position: 0.8% Overall debt burden: 1.7% Principal amortization (10 years): 91% Post -sale general obligation debt outstanding: $28.0 million Analysts Rachel Cortez Analyst Public Finance Group Moody's Investors Service Elizabeth Weber Backup Analyst Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553 -0376 Research Clients: (212) 553 -1653 Copyright 2007, Moody's Investors Service, Inc. and /or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S All rights reserved. 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