HomeMy WebLinkAboutStandard Poor's Finance Rating
Pr,lIIary Credit Analysts:
Corey Friedman
Chicago
(1 I 312-23POIO.'
corey-friedman@
sta.ndarda ndpoors .com
Secondary Credit AnalySts:
Helen Samuelson
Chicago
(1)312-233-7011
hereri_sainuelson~
stCl.ndargClQdpoors.com
RatingsDirect
Publication Date
Dec. 19, 2006
Jeffersonville Building Corp., Indiana
\
Credit Profile
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US$lO.805mil1 st rntg bnds ser2006A.-Gdue 08/15/202(3 .
Long Term Rating .
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01/01/2005-2016
Term Rating
Rationale
The 'A-' rating on Jeffersonville Building Corp., lnd.'s 2006A-2006C bonds, supported by the city of
Jeffersonville, is based on the city's absolute and unconditional obligation to levy an ad valorem
property tax on all taxable property in the city, to make lease payments if tax increment financing
revenues are insufficient.
The rating also reflects:
· Access to the Louisville, Ky., MSA's deep and diverse economic base; and
· Solid financial position following the statewide property tax reassessment in 2003; and
· Moderate debt position.
Below-average income levels and per capita market value levels limit the city's strengths.
The bonds, although paid from tax increment revenues, are secured by lease rental payments to be
made by Jeffersonville to the trustee. Lease rentals are payable from unlimited ad valorem property
Jeffersonville Building Corp. , Indiana
Jeffersonville
taxes to the extent that tax increment revenues are insufficient. Lease payments in support of debt service for the
two new fire stations and a new city services building cannot be made until the city has completed the
infrastructure improvements, which is expected by fall 2007. Interest on the bonds is capitalized six months
beyond project completion. Construction ofthe new facility will be managed by a construction management
company with extensive experience with municipal building projects. Jeffersonville has a 5% contingency built
into its project costs, which the city has found to be sufficient cushion in the past. Each contractor is required to
have insurance coverage that covers the value of the property. Given these factors, Standard & Poor's Ratings
Services considers construction risk to be minimal.
Jeffersonville is located just across the Ohio River from the city of Louisville, Ky. (Louisville and Jefferson
County Metropolitan Government, 'AA+' GO rating, stable outlook), and city residents enjoy access to a
continually diversifying local area economy, which currently offers a wide variety of employment opportunities
in services (31 % of the labor force), trade (18%), government (15%), and manufacturing (13%). Consequently,
the local economy weathered the nation's most recent economic downturn particularly well. The city's
unemployment rate (5.3% in 2005) is on par with the state's average. Income levels for the city have
historically remained below average, with median household effective buying income at 89% of state and
national averages.
The combination of affordable housing and access to a diverse local area economy has sparked population
growth and gains in the property tax base. Population grew by 25% in the 1990s to 27,362; management has
since estimated that it has increased to 28,620. Postreassessment property tax base figures reveal a 2006
assessed valuation (A V) of $949 million. A V had experienced average annual increases ofahealthy 6.5%
between tax years 2002 and 2006. The year-to-year changes in A V include some effects from the statewide
reassessment period. Additional growth in the tax base reflecting suburban growth out of the Louisville MSA.
The city's 10 leading taxpayers make up a low 9% of total A V.
Despite significant delays in property tax receipts related to the statewide property tax reassessment, the
fmancial position remains sound. The city mailed out its property tax bills for fiscal 2003 in October 2004,
about 29 months behind schedule. To avert cash flow shortages, the city borrowed $10 million from Bank One
in the form of a tax anticipation warrant in fiscal 2003. The city extended the due date of the warrant twice to
December 2004. The city ended fiscal 2004 (Dec. 31) with an audited cash balance of nearly $7 million, or a
good 54% of expenditures in the general fund. The city's unaudited cash result in fiscal 2005 showed a $4.0
million drawdown in the general fund due to delays in the city receiving its fmal tax payment. The city received
the payment in early fiscal 2006. The city projects ending fiscal 2006 with a slight general fund surplus. The
tentative fiscal 2007 budget shows a small general fund surplus. The city's financial management assessment is
standard.
Overall debt levels are moderate at $1,827 per capita and 5.5% of market value. The city is not engaged in
any swaps or variable-rate debt transactions. The city's may address future capital needs by issuing about $8
million in additional debt. However, plans are not definitive at this time.
Outlook
The stable outlook reflects the expectation that the city's fmancial position will remain solid despite delays in
receiving tax payments. Rating stability is also grounded in the city's participation in the Louisville, Ky. MSA.
Standard & Poor's [ ANALYSIS
2
Jeffersonville Building Corp. , Indiana
Jeffirsonville
Construction Risk
Some ofthe ratings affirmed with this release have been updated to remove the provisional qualifier formerly
used during the construction period (before the city begins making lease payments). Standard & Poor's
considers the construction risk associated with those bonds to be minimal. While construction risk does stilI
exist due to the requirement that the leased facility must be sufficiently occupied before lease payments may
begin, a number offactors mitigate this risk, including:
· The essentiality and straightforward nature of the project;
. Capitalized interest providing more than a six-month cushion between the expected completion date and the
first lease payment requiring occupancy;
· A contingency reserve deemed appropriate for the project;
· Builder's risk insurance that by state law must equal 100% of the construction cost; and
· A lease term that extends beyond the term of the bonds, allowing for additional financing capacity if needed.
Circuit Breaker Legislation
Standard & Poor's is reviewing legislation recently enacted by the Indiana General Assembly mandating the
application of a 2% "circuit breaker" property tax credit to all real and personal property throughout state. We
believe the legislation could affect a local unit's ability to repay debt service on property-tax-backed debt
obligations (GO and lease rental obligation), as the tax rate cap applies to both operating and debt service
property tax mills. Outstanding debt does not appear to be grandfathered. Despite the fact that the tax cap does
not take effect for issuers outside Lake County until 2008-2010, we are also aware that bond counsel opinions
are now being issued that reflect the limited-tax effect of the circuit breaker legislation. Our current limited-tax
GO criteria dictates that no distinction between limited-tax and unlimited-tax ratings will be made on issues
rated 'A-' or higher; rating distinctions may be made at lower rating levels depending on fmancial flexibility.
However, as our understanding of the true effect of the legislation evolves, this opinion could change. The city
of Jeffersonville does not expect an impact from this legislation at this time because it levies below 2%.
Financial Management Assessment
The city of Jeffersonville's management practices are considered standard under Standard & Poor's Financial
Management Assessment (FMA). An FMA of standard indicates that the finance department maintains
adequate policies in most but not all areas. The city uses historical analysis and accounts for upcoming onetime
expenditure items when budgeting and monitors the budget at least monthly, with monthly reporting of results
to the city council. After the initial budget is created, the budget is amended as needed. The city's investment
policies follow the state guidelines, but no formal reporting of holdings is done. The city does not have any
multiyear [mancial and capital plans. The city also lacks a formal debt policy.
Ratings Detail (As Of 19-Dec-2006)
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Jeffersonville Oldg Corp. Indiana
Jeffersonville, Indiana
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Long Term Rating . A:/Stabl~
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3
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reference no.: 811077
STANDARD
&POOltS
December 19, 2006
City of Jeffersonville
500 Quartermaster Court
Jeffersonville, IN 47130
Attention: Mayor Robert Waiz, Jr.
Re: US$1 0,805,000 Jeffersonville Building Corporation, Indiana, First Mortgage Bonds,
Consisting of: $4,010,000 Series 2006A, $2,180,000 Series 2006B and $4,615,000 Series
2006C, dated: Date of Delivery, due: August 15, 2008-2026
Dear Mayor Waiz:
Pursuant to your request for a Standard & Poor's rating on the above-referenced obligations, we
have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions,
have assigned a rating of "A-". Standard & Poor's views the outlook for this rating as stable. A
copy of the rationale supporting the rating is enclosed.
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Mayor Robert Waiz, Ir.
Page 2
December 19, 2006
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