September 13, 2012 / 4:16 PM / 5 years ago

TEXT-Fitch affirms Gastonia, NC 'AA' GOs

Sept 13 - Fitch Ratings affirms the following ratings for the city of
Gastonia, North Carolina (the city): 

--$38.8 million general obligation (GO) bonds at 'AA';
--$15.3 million limited obligation bonds (LOBs) at 'AA-'.

The Rating Outlook is Stable.

SECURITY 

The GO bonds are secured by the city's pledge of its faith, credit, and taxing 
power. The LOBs are payable from payments to be made by the city, subject to 
appropriation, pursuant to a Master Trust Agreement. The LOBs are additionally 
secured by a Deed of Trust granting a lien on four fire stations.

KEY RATING DRIVERS

ECONOMIC BASE EXPANSION: The city continues to diversify its traditional 
manufacturing base into the international, technology, high end manufacturing, 
and trade sectors. The city benefits from its proximity to downtown Charlotte. 

BELOW AVERAGE SOCIO-ECONOMIC METRICS: The city underperforms in wealth and 
employment metrics. Growth in these metrics has lagged national trends.

HEALTHY FINANCIAL PROFILE: Prudent financial management underscores ample 
reserve levels, sound liquidity, and overall notable financial flexibility. 

POSITIVE DEBT PROFILE: Debt levels are moderately low and long-term obligations 
do not pressure the credit.

LOBS APPROPRATION RISK: The 'AA-' rating on the LOBs reflects the city's general
creditworthiness, the inherent appropriation risk, and the essentiality of the 
assets under the lien.

CREDIT PROFILE

CONTINUED ECONOMIC BASE DIVERSIFICATION 

Gastonia is located near the South Carolina border and benefits from its 
proximity to downtown Charlotte (GO bonds rated 'AAA', Outlook Stable by Fitch).
The city has widened its economic base from the textile industry to other 
sectors, such as high end technology. Gastonia Technology Park has become 
increasingly international with the addition of Lanxess AG and REPI S.P.A., 
which are two companies with European roots. The city is working in conjunction 
with Gaston County on the possible expansion of the current Gastonia Technology 
Park as well as the development of a second technology park.

RELATIVELY WEAK SOCIO-ECONOMIC METRICS

The city's unemployment has consistently trended above that of the region and 
nation. In July 2012, the city's unemployment rate was 10.3% while the national 
unemployment rate was 8.6%. Fitch recognizes that diversifying an economic base 
will often lead to a transition period of increased unemployment. 

The city's 2010 median household income was about 80% and 90% of the national 
and state medians, respectively. The city's individual poverty rate was about 
50% above national norm. Growth in these socio-economic metrics has also lagged 
national trends despite parallel population growth.

FINANCIAL FLEXIBILITY AND HEALTHY RESERVES 

The city has consistently maintained ample reserves and retained financial 
flexibility. Unrestricted fund balance has steadily exceeded the city's prudent 
policy of 12%-15% of expenditures. Liquidity levels are solid.

The city concluded fiscal 2011 with a $1 million surplus in the general fund, 
which is equal to 1.8% of expenditures and transfers out. The unrestricted fund 
balance, which is the sum of committed, assigned, and unassigned balance per 
GASB54, equaled a solid 14.4%. Including reserves required by state statute, 
which are primarily to offset accounts receivable, the available balance has 
decreased in recent years but remains strong at 28.8% of spending.   

In 2012, the city budgeted for a fund balance appropriation of $1.2 million. 
However, the utilization of this appropriation will likely be unnecessary. The 
city expects to increase unrestricted fund balance to 18% at the end of year, 
primarily due to $2.1 million in American Recovery and Reinvestment Act (ARRA) 
receivables being converted to cash. 

The fiscal 2013 general fund budget does not incorporate a fund balance 
appropriation. The budget benefits slightly from a projected 3% growth in 
property taxes, arising from a slight uptick in assessed value (AV). The city 
expects to continue to reduce expenditures by increasing operational efficiency,
and Fitch believes there is ample flexibility should additional expenditure 
reductions be required. The city projects the unrestricted fund balance to 
remain at 2012 levels.  

MODERATELY LOW DEBT BURDEN AND MINIMAL CAPITAL PROJECTS NEEDS

Overall debt equals 2.7% of market value and $1,918 per capita, and amortization
is above average at 59% of principal retired within ten years. The city has no 
plans to issue more tax supported debt in the near future.

 

The fiscal 2013 - fiscal 2017 capital improvement plan (CIP) has $19.2 million 
of expenditures of which $11.2 million is attributable to self-supporting 
enterprise funds. The city has identified sufficient resources to fully cover 
all of its tax supported capital projects in the near future without having to 
issue debt. Fitch does not expect the city's capital projects to pressure the 
credit.

MANAGEABLE POST-EMPLOYMENT LONG-TERM OBLIGATIONS 

The city contributes to the state-wide Local Governmental Employees' Retirement 
System (LGERS), a cost-sharing multiple-employer defined benefit pension plan. 
The city administers a small single-employer (SE) defined benefit pension plan 
that provides supplemental retirement benefits for law enforcement and fire 
fighters. Pension contributions do not pressure city finances. The city's fiscal
2011 annual required contribution (ARC) for its SE plan equals 1.4% of spending 
and for LGERS equals 4.2% of spending. The unfunded actuarial accrued liability 
is 0.2% of taxable market value for the SE plan. Although funding of the state's
major pension system has declined, it remains nearly fully funded at 95.4% as of
Dec. 31, 2010.

The city's fiscal 2011 ARC for other post-employment benefit (OPEB) was $3.6 
million, which equals 5.8% of spending. In 2011, the city contributed $1 million
for OPEB. Fitch does not expect post-employment obligations to pressure the 
credit.

LIMITED OBLIGATIONS BONDS

Debt service payments for the LOBs are subject to annual appropriation. As 
security for the bonds, the city delivers a deed of trust granting a lien on 
four fire stations which have a combined insured value of $9.3 million. Fitch 
considers these facilities to be essential and thus believes the city has 
sufficient incentive to appropriate. The city may also partly or wholly 
substitute other properties as security, provided that the remaining fire 
stations or the substitute property are worth 50% or more of principal 
outstanding.

The conference center, which the LOBs partially finance, is not pledged as 
collateral. The city projects that the full cost of debt service can be met by 
existing hotel occupancy tax and municipal service district tax revenues, but 
these revenues are not pledged to the LOBs. While Fitch does not give these 
bonds self-supporting credit, it does recognize that the fiscal 2012 hotel 
occupancy tax revenues and the municipal service district tax revenues cover 
1.11x of the 2012 LOBs debt service. Fitch also recognizes that these revenues 
shift some of the debt burden to non-residents.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below