Fitch Ratings assigns an 'AA' to the following Matanuska-Susitna
Borough, Alaska (the borough) bonds:
--$61.2 million general obligation (GO) school bonds, 2015
series B;
--$1.6 million general obligation (GO) transportation system
bonds, 2015 series C.
The bonds are scheduled to be sold via negotiation on or about
March 19, 2015.
In addition, Fitch affirms the following ratings:
--$299.8 million outstanding GO bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an unlimited ad valorem property tax
levied against all property within the borough.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: The borough's financial
performance is strong with generally positive operating results and
healthy reserves.
LIMITED POPULATION AND ECONOMY: The borough's economy is
inherently constrained by a relatively small population base and
the seasonality of some local economic activity. The economy has
gradually expanded and diversified, but it remains the key factor
limiting the rating.
HEALTHY DEBT PROFILE: The debt burden is moderate and most of
the debt qualifies for state-reimbursement, limiting pressure on
the local tax base. Pension and other post-employment liabilities
are limited by significant state support for retiree costs.
SOLID MANAGEMENT PRACTICES: The borough benefits from healthy
financial management practices, including conservative budgeting
and a strong fund balance policy.
RATING SENSITIVITIES
EROSION OF GENERAL FUND BALANCE: Unrestricted fund balance draws
below policy levels could trigger negative rating action, as a
robust financial cushion mitigates credit concerns surrounding the
inherently constrained nature of the borough's economy.
CREDIT PROFILE
The borough is located in south-central Alaska, approximately 40
miles northeast of the business district of Anchorage. The borough
covers 25,265 square miles and has the fastest growing population
in the state.
ONGOING ECONOMIC DIVERSIFICATION
The borough is now the third most populous Alaska municipality
with 95,192 residents. The local economy and population has
expanded rapidly since the early 1990s when increasing numbers of
Anchorage workers began moving to the southern area of the rural
borough due to the lure of affordable housing and large lots. About
a third of borough workers commute to Anchorage, while about 12%
commute outside of the region to work in the Alaska oil fields and
elsewhere.
The economy remains small and more isolated than the average
U.S. community, albeit with strong growth trends and increasing
diversification. The borough is the largest agricultural producer
in Alaska though it has diversified with the expansion of tourism,
construction, health care, governmental and retail sectors. The
borough continues to develop and diversify its economy with the
development of Port MacKenzie and expansion of tourism
infrastructure in addition to natural growth due to
in-migration.
The borough's socio-economic characteristics are sound with
median household income at 134% of the national level and inline
with the state median. The individual poverty rate of 9.9% equals
the state rate and remains noticeably lower than the national rate
(15.4%).
STRONG RECENT PERFORMANCE
The borough experienced a relatively muted version of the recent
national economic downturn with no declines in taxable assessed
values (TAV), continuing population growth and less pronounced
increases in joblessness. The borough's jobless rate has averaged
7.2% over the 12 months ended December 2014. Annual average
unemployment rates tend to be higher than the national average
because of the seasonality of work in Alaska.
Tax base growth has slowed in recent years, but did not
experience declines common in most of the country during the
recession. TAV increased 3.5% in 2015 to $9 billion with growth
averaging 3.1% since 2010. Recent growth is down significantly from
the double digit expansions of the last decade due to slowing in
both residential and commercial development. Taxpayer concentration
is not a concern with the top 10 payers representing only 4.2% of
TAV and including a healthy variety of retail, health care,
tourism, utility, and energy related concerns.
ENERGY INDUSTRY
The borough's economy is less dependent on the state's large oil
industry than many other Alaska municipalities, but it is not
completely immune to the pressures associated with sharply
declining oil prices. While no energy producers are among the
borough's top tax payers or employers, the borough benefits from
oil industry employment of residents who commute to oil fields and
Anchorage for work.
The borough also benefits from significant state aid that is
funded with oil severance tax receipts that have fallen sharply in
recent months. The rating could come under pressure if the state
resolves its budget imbalance by cutting aid to local governments
and the borough fails to make offsetting budget adjustments. Fitch
believes this is unlikely due to the borough's ability to raise
taxes significantly for debt service (and somewhat for operations),
long track record of making budget adjustments as necessary to
maintain robust performance, and solid financial policy
framework.
STRONG FINANCIAL PERFORMANCE
Financial performance has been significantly stronger than
policy requirements or the typical U.S. municipality, offsetting
the limitations of the gradually diversifying economy. The
borough's general fund balance grew in eight of the past nine
fiscal years through June 30, 2014. The borough used about $11
million in unrestricted fund balance for planned capital spending
in fiscal 2012, but began to build fund balance again in fiscal
2013. Unrestricted fund balance (the sum of committed assigned and
unassigned under GASB 54) rose $1.1 million to a very strong $58.9
million, or 47.4% of expenditures and transfers out in fiscal
2014.
SOLID MANAGEMENT PRACTICES
Financial management practices are solid with consistently
conservative budgeting and a healthy fund balance policy. The
borough must maintain a general fund reserve of at least 22.5% of
all budgeted operating expenditures (excluding school district
spending) by borough policy. The borough assembly reduced the
policy limit from 25% recently, but the level of the policy target
remains healthy. The borough has a long history of outperforming
the fund balance policy. Financial decision making appears
efficient, with budgets delivered on time and in compliance with
policies. Failure to maintain a strong financial cushion and adhere
to reserve policies would place pressure on the borough's GO bond
rating.
MANAGEABLE LONG TERM LIABILITIES
Total net debt including overlapping jurisdictions is moderate
at $3,962 per capita or 3.8% of TAV. Amortization is healthy with
61% of bonds repaid in 10 years and all bonds repaid in 20 years.
The borough has $4.8 million of additional school bond and $14.4
million of road bond authorization currently approved by voters and
no immediate plans to request more GO authorization.
Pension obligations and other post-employment benefits (OPEB)
are a significant but manageable expense. The borough routinely
makes its full annually required contributions to the Alaska Public
Employees Retirement System, the Supplemental Benefits System, and
the Alaska Teachers Retirement System. The state is
constitutionally responsible for any actuarially required
contributions in excess of 22% of payroll.
Carrying costs for debt service, pension and OPEB are moderate
at 10.7% of governmental funds spending and are low at 6.7% after
taking into account state debt service reimbursements. Debt service
accounts for the bulk of carrying costs, and the state of Alaska
reimburses the borough for about 60% of debt service via
reimbursement for eligible school bond debt service.
Additional information is available at
'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally
informed by information from CreditScope, IHS Global Insight,
Foster Pepper PLLC (bond counsel) and RBC Capital Markets
(financial advisor).
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980854
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Fitch RatingsPrimary AnalystAndrew
WardDirector+1-415-732-5617Fitch Ratings, Inc.650 California St.
4th FloorSan Francisco, CA 94108orSecondary AnalystAlan
GibsonDirector+1-415-732-7577orCommittee ChairpersonKaren
RibbleSenior Director+1-415-732-5611orMedia RelationsElizabeth
Fogerty+1-212-908-0526New
Yorkelizabeth.fogerty@fitchratings.com