Fitch Ratings | Press Release
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Fitch Rates Charlotte, NC's GOs 'AAA'; Outlook Stable
Ratings Endorsement Policy
05 Aug 2013 10:32 AM (EDT)
Fitch Ratings-New York-05 August 2013: Fitch Ratings has assigned a rating of 'AAA' to the following general obligation
(GO) bonds of the city of Charlotte, North Carolina (the city):
--$34,370,000 taxable GO bonds, series 2013A;
--$115,000,000 GO refunding bonds, series 2013B.
The 2013A bonds are scheduled for competitive sale on Aug. 13, and the 2013B bonds are scheduled for negotiated sale
on Aug. 22. Proceeds of the series 2013B bonds will refund on a current basis the city's outstanding GO bonds, series
2003A, 2003B, and 2003C for debt service savings. Proceeds of the series 2013A bonds will finance various low to
moderate income housing projects within the city.
In addition, Fitch affirms the 'AAA' rating on approximately $789 million of outstanding GO bonds.
The Rating Outlook is Stable.
SECURITY
The bonds are a general obligation of the city secured by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The city has a long history of favorable financial operations and maintenance of high
reserves that provide a cushion against unforeseen budgetary challenges or emergencies.
FAVORABLE OPERATING FRAMEWORK: The city's revenue base is adequately diverse led by property taxes, and tax
rates are regionally competitive and well within the statutory cap. Spending pressures are driven by public safety and debt
servicing costs, while pension and other employee related expenditures remain manageable.
REGIONAL ECONOMIC HUB: Charlotte remains a major transportation, banking, and commercial center for the southeast
and among the fastest growing cities in the U.S.
DEBT MANAGEMENT FOCUS: Certain key debt metrics are considered above average by Fitch and the ability to balance
investment in infrastructure necessitated by persistent growth pressures will be a credit consideration looking forward.
Current issuance plans are manageable, and the city's ongoing commitment to pay-as-you-go capital and significant debt
service fund balances provide comfort.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management
practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
FINANCES REMAIN A KEY CREDIT STRENGTH
General fund financial operations remain very healthy. Fiscal 2012 concluded with an operating surplus (after transfers) of
$9.6 million or 1.8% of total spending. Fiscal 2012 general fund available resources of $158.1 million equal a very high
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29.7% of total spending - inclusive of $61.7 million of fund balance restricted by state law but generally considered as an
available resource by Fitch. The city's fund balance policy is 16% or twice the state recommended level.
Management reports a preliminary operating surplus (after transfers) of $15 million for fiscal 2013 (ended on June 30). An
operating deficit has been incurred in only four years since fiscal 2000 and related to one-time expenses, primarily pay-asyou-go capital.
The adopted fiscal 2014 budget appropriates a modest $550,000 in existing general fund balance (only 0.1% of the $563.5
million budget) and increases total revenue a reasonable 2.2% (includes increases of 1.2% for property taxes and 3.5% for
sales taxes, the largest general fund sources at approximately 57% and 13% of revenue, respectively.
DEBT METRICS MODERATELY HIGH BUT MANAGEABLE
Overall debt ratios (about 4.5% of market value or $5,200 per capita) are moderately high but should not change materially
as a result of future borrowing plans.
The total carrying cost for long-term liabilities (including pension and other post-employment benefits (OPEB)) is equal to a
somewhat elevated 24% of governmental fund spending (less capital projects) and principally driven by debt. The city
consistently maintains a large accumulated balance in the debt service fund above annual expenses (equal to $85 million
in fiscal 2012) which offsets this concern.
The city administers a single employer defined benefit pension plan for firefighters and participates in the state plan
(LGERS) for all other employees. Pension funding remains exceptionally strong at the state level and the city's firefighter
plan very solid at 78.5% (based on a Fitch-adjusted 7% investment rate of return).
REGIONAL ECONOMIC CENTER WITH STRONG GROWTH PROSPECTS
Fitch expects the city's role as a regional center for trade, transportation, health care, and financial services will contribute
to a general trend of economic growth and stability. Recent expansion within technology, pharmaceutical, and energy
sectors have the potential to boost already above-average income indices.
Total employment in Charlotte has increased at a compound annual growth rate of 2% from 2004-2012 or about 7 times
the national average. May 2013 employment is 2.4% ahead of the prior year but the city's unemployment rate remains
somewhat high at 7.9% due to rapid expansion of the city's highly skilled labor pool.
Contact:
Primary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com.
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
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informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS
Global Insight, National Association of Realtors.
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
U.S. Local Government Tax-Supported Rating Criteria
Additional Disclosure
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SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright © 2013 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries.
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