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HomeMy WebLinkAbout05/20/2014 09 Report on Sale of General Obligation Bonds for Street Resurfacing Project44,100, BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 9. For Meeting of: May 20, 2014 1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111 ITEM TITLE: Report on sale of General Obligation Bonds for street resurfacing project. SUBMITTED BY: Cindy Epperson, Director of Finance and Budget SUMMARY EXPLANATION: Prior to issuing bonds, the City must receive a bond rating. Standard and Poor's provided the rating as they have been our rating agency for many years. We received our bond rating on Wednesday, May 14, and we are pleased to announce that the City was upgraded from "A+ to AA-." The report sites strong management practices and policies, as well as good reserve balances. We will have the sale results Monday afternoon. Resolution: Ordinance: Other (Specify): Contract: Contract Term: Start Date: End Date: Item Budgeted: Amount: Funding Source/Fiscal Impact: Strategic Priority: Insurance Required? No Mail to: Phone: APPROVED FOR SUBMITTAL: RECOMMENDATION: ATTACHMENTS: Description ❑ S&P report Upload Date 5/15/2014 City Manager Type Cover IMleirttno STA CAR IIIMi u, IIIA ��w�i III�� RAT 'E C �r McGRAW HILL FINANCIAL III III Auuuuuuuuu S .nrinrlulaury Yakima, Washington; General Obligation Primary Credit Analyst: Sarah Sullivant, San Francisco (1) 415-371-5051; sarah.sullivant@standardandpoors.com Secondary Contact: Chris Morgan, San Francisco (1) 415-371-5032; chris.morgan@standardandpoors.com he 'If' Contents, Rationale Outlook Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 14, 2014 1 131 '7910 1 30 1 91 £i S' nr1IILinary Yakima, Washington; General Obligation 111 11111 11111 111111 111 ID 111111 iii I111r 11111111111111 US$14.0 mil ltd tax GO bnds due 06/01/2024 Long Term Rating Yakima GO Unenhanced Rating R don AA -/Stable New AA-(SPUR)/Stable Upgraded Standard & Poor's Ratings Services raised its long-term rating and underlying rating (SPUR) on Yakima, Wash.'s general obligation (GO) bonds to 'AA-' from 'A+' based on our local GO criteria released Sept. 13, 2013. At the same time, Standard & Poor's assigned its 'AA-' rating to the city's limited -tax GO (LTGO) bonds, series 2014A. The outlook is stable. A pledge of the city's full faith credit and resources secures the 2014A bonds, together with an agreement to levy and collect ad valorem property taxes within statutory limitation for the payment of debt service. The ratings reflect our assessment of the following factors for the city: • Very strong budgetary flexibility, with fiscal 2013 unaudited reserves equal to 18% of expenditures; • Strong budgetary performance, with a surplus in audited fiscal 2012 and balanced operations for fiscal 2013; • Strong management conditions supported by good financial practices and policies; • Adequate debt and contingent liabilities profile, incorporating additional debt plans in the medium-term; • Very strong liquidity; • Weak economy, with low to adequate wealth and income levels; and • Adequate Institutional Framework. Very strong budgetary flexibility Yakima's budgetary flexibility is very strong, in our view, with unaudited available reserves equal to 18% of operating expenditures in fiscal 2013, down slightly from fiscal 2012. For fiscal 2014, the city has budgeted for ending reserves of roughly 17%. We do not expect reserves will fall below 15% of expenditures, based on management's projections. Strong budgetary performance The city's budgetary performance is strong overall, in our opinion, with a surplus of 1.4% for the general fund and a deficit of 0.7% for the total governmental funds in fiscal 2012. Unaudited fiscal 2013 results, adjusted for significant one-time items, are roughly balanced, and management reports that after reducing expenditures further than necessary during the recent recession, ongoing operations are budgeted to be in line with recurring revenues. The city's operating budget for fiscal 2014 is balanced without the use of reserves across operating funds. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 14, 2014 2 1317910 301918 Summary: Yakima, Washington; General Obligation Strong management We consider Yakima's management conditions strong, with good financial practices based on our Financial Management Assessment (FMA) methodology. An FMA of "good" indicates adequate policies exist in most areas, but that governance officials might not formalize or monitor all of them on a regular basis. Strengths of the assessment, in our opinion, include strong oversight of budget -to -actual performance, long-term financial and capital plans, and a formal 16.7% reserve policy. Adequate debt and contingent liabilities profile The city's debt and contingent liabilities profile is adequate, in our opinion. Net direct debt is 67.8% of total governmental funds revenue, and total governmental funds debt service is 5.2% of governmental fund expenditures. In 2012, Yakima's annual pension and other postemployment benefit costs accounted for 8% of the total government expenditures. The city issued private -placement LTGO debt in 2013. Interest on the bonds is fixed for five years, with a rate reset or put option every five years (beginning June 2018) contingent on 180 days' bank notice. Acceleration is not a remedy for default under the agreement, and we do not believe the default interest rate would significantly increase debt service payments. Very strong liquidity Very strong liquidity supports Yakima's finances, with total government available cash equal to 21% government fund expenditures and 4x debt service. Based on past issuance of debt, we believe that the issuer has exceptional access to capital markets to provide for liquidity needs if necessary. The city manages its own investments, and its investment policy conforms to state law. Weak economy We view Yakima's local economy as weak, with projected per capita effective buying income at 81% of the national average and per capita market value at roughly $58,400. The city's economy has historically been agricultural, although it serves as a commercial and governmental center for a largely rural agricultural region. Yakima County's unemployment rate in 2013 was 9.2%, according to the Bureau of Labor Statistics. Although the city's economy is limited by low to adequate wealth and income levels, property values in the area have historically been stable, and we do not expect a significant decline in key economic indicators. Adequate Institutional Framework We consider the Institutional Framework score for Washington municipalities adequate. See Institutional Framework score for Washington. il.00k The stable outlook reflects our opinion of the city's historically stable finances, supported by strong management, together with its stable, if limited, economy. We do not expect to raise the ratings during the two-year outlook horizon, given recent revenue growth and budget projections that reflect improvement in economically sensitive revenues. We do not expect to lower the ratings, but could do so should the city's budgetary performance and flexibility weaken considerably. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 14, 2014 3 1317910 1301918 ted C:r°ite:r:i And Res k1i Summary: Yakima, Washington; General Obligation Related Criteria USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 Related Research Institutional Framework Overview: Washington Local Governments II�IIIIIII IIIIII�I JI „ ////„ U fiN°ill II•�II/00011 111:,111 III/W �IIIII gIII VIII 111 IIOIIIIIII IIIIO r IIII III' IIII III 111 111 Yakima ltd tax GO bnds ser 2002 dtd 05/01/2002 due 06/01/2003-2014 2016-2022 2026 Unenhanced Rating AA-(SPUR)/Stable Yakima GO ser 2005 Long Term Rating AA -/Stable Yakima GO (AGM) Unenhanced Rating AA-(SPUR)/Stable Yakima GO (ASSURED GTY) Unenhanced Rating AA-(SPUR)/Stable Upgraded Upgraded Upgraded Upgraded Yakima unitd tax GO & ltd tax GO rfdg bnds Unenhanced Rating AA-(SPUR)/Stable Upgraded Yakima GO Unenhanced Rating AA-(SPUR)/Stable Upgraded Many issues are enhanced by bond insurance. 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