OREANDA-NEWS. Fitch Ratings has assigned a 'AA+' rating to the following revenue bonds to be issued by the Atlanta Public Safety and Judicial Facilities Authority, GA (PSJFA):

--$26,455,000 revenue refunding bonds (public safety facility project), series 2016.

The bonds are expected to be sold via negotiation on or about Aug. 23. Proceeds will refund the PSJFA's outstanding series 2006 revenue bonds for debt service savings.

The Rating Outlook is Stable.

SECURITY

The revenue bonds are backed by payments to be made by the city of Atlanta to the PSJFA pursuant to a lease agreement. The obligation of the city to make the lease payments shall be made from its general funds and shall constitute a general obligation of the city backed by its full faith and credit and taxing power.

KEY RATING DRIVERS

Analytical Conclusion: The 'AA+' rating assigned to the PSJFA bonds, the same as the city's Issuer Default Rating (IDR) and Fitch's rating on the city's general obligation bonds, incorporates the city's strong financial resilience evidenced through a combination of adequate reserves and a high level of inherent budget flexibility. Some pressure exists around fixed charges for debt and employee pensions and the long-term liability burden associated with each, but broad pension reforms enacted several years ago lessens this exposure on the city's overall credit quality.

Economic Resource Base

Atlanta anchors one of the largest and fastest growing economies and population centers in the U. S. The economy features a good industry diversification, a well-developed network of transportation assets, a well-educated labor pool and a generally affluent population, among other strengths. Weaknesses center on a propensity for comparatively high unemployment and housing volatility in economic downshifts and above-average rates of poverty.

Revenue Framework: 'aa' factor assessment

Property taxes are the largest funding source for the general fund budget and are not limited with respect to rate or amount, providing the city significant flexibility to address unforeseen budget challenges or economic downturns. Historical revenue growth has been slow within the general fund essentially keeping track with inflation over the prior decade.

Expenditure Framework: 'aa' factor assessment

The pace of spending growth is expected to remain in-line with revenues given the broad nature of the city's service responsibilities and demand from population gains. Employee wages and benefits are not contractually stipulated giving the city broad control over the key driver of general fund spending and easing pressures associated with a higher level of fixed long-term liability costs.

Long-Term Liability Burden: 'aa' factor assessment

The city's long-term liability metric approximates a moderate 10.5% of personal income. The burden is largely driven by the net pension liability associated with the city's closed defined benefit pension plan. General government capital needs are manageable and not expected to burden the city's resource base.

Operating Performance: 'aaa' factor assessment

The city retains an exceptionally strong capacity to address budgetary challenges evidenced in its proactive revenue and expenditure management and high level of fiscal reserves. The city has strengthened its financial reporting practices to minimize risk of unfavorable budgetary variances and bolstered formal reserve policies.

RATING SENSITIVITIES

Declining Operating Flexibility: A prolonged weakening of the city's financial resilience to potential economic downturns including the diminishment of reserves or other budgetary tools could lead to the consideration of a rating downgrade.

Improved Liability Burden: A reduction of the city's long-term liability burden could lead to the consideration of a rating upgrade.

CREDIT PROFILE

Atlanta continues to anchor one of the most rapidly expanding large regional economies in the U. S. as measured by nonfarm employment, housing starts, and real gross metro product, among other metrics.

The Atlanta MSA economy is very broad with more than 2.6 million nonfarm jobs and balanced with significant levels of employment evident in professional and business services, trade and transportation, government, education and health services, and leisure and hospitality. According to IHS a total of 450 of the Fortune 500 companies are located within the Atlanta MSA exemplifying the high level of business diversity that exists. Coca-Cola, AT&T, Home Depot, UPS, The Home Depot, SunTrust and Delta Air Lines each have their corporate headquarters within the city. Educational attainment is high with 20% of the city's adult-aged population holding an advanced degree compared to 11% nationally, supporting a high per capita personal income equal to 159% of the Georgia and 135% of the U. S. average.

Despite these strengths the Atlanta economy remains susceptible to periods of high unemployment and housing volatility. Annual unemployment peaked at a high 11.3% in 2010 and typically registers above state and national norms. The city's poverty rate is almost 24% reflecting an income dichotomy consistent with many large urban cities and a higher proportion of college-aged residents. Home prices reported by Zillow Group fell 40% from 2006-2011 but have recovered steadily since and now approximate pre-recession highs.

Revenue Framework

The city's general fund revenue framework is very diverse led by property taxes and local option sales taxes which account for roughly 30% and 20% of resources, respectively. General fund sales tax revenue consists of a 1% local option sales tax (LOST) shared between Fulton County and municipalities within the county based on population. The city also levies a 1% municipal option sales tax (MOST) for retail sales and use within the city's incorporated limits which is recorded outside of the general fund and dedicated to water and sewer system renovations and improvements. Public utility franchise fees, business licenses, and fines and forfeitures round out the remainder of key general fund revenue streams with each representing between 5%-8% of total revenue.

General fund revenues have grown less than 2% annually over the decade through 2014 which essentially tracks the level of inflation over the same period. The city's property tax levy has increased 2% annually exceeding the 1% rate of growth in the tax base over this time due to adjustments in the property tax rate. Sales tax revenues have also increased 2% per year.

The city has very broad legal revenue raising authority as its property tax rate and levy are not subject to a cap or external approval. The city also retains flexibility with regard to its business licenses and fines and forfeiture revenue streams. Sales tax revenues are subject to voter approval and public utility franchise fees are limited pursuant to state law.

Expenditure Framework

The general fund budget provides for the provision of police, corrections, and fire, which collectively represent close to 60% of all spending, with the bulk of remaining resources consumed by public works and parks and recreation. Across all general fund departments personnel wages and benefits account for roughly 70% of the budget.

Spending levels are expected to track changes in population and inflation and expand at a pace that is in-line with, to marginally above the pace of revenue change over time in the absence of policy actions.

Salaries and other employment benefits are not subject to collective bargaining or contractual agreement, affording the city good flexibility to manage the budget's primary expense driver. Tempering this credit strength are the rather high charges associated with the funding of debt, pension, and OPEB, which are estimated by Fitch to equal 25% to 30% of governmental spending (adjusted by Fitch to deduct the proportional share of annual pension and OPEB costs related to enterprise fund employees). Actuarially required pension contributions have been trending downward in recent years and new money debt issuance plans are limited, which should keep the cost of these commitments from increasing much in the near term. The city has demonstrated the capacity to accommodate these costs in recent budgets and still achieve positive year-end results.

Long-Term Liability Burden

The city's long-term liability burden is estimated by Fitch at 10.5% of personal income (similarly adjusted by Fitch to reflect the proportional share of the liability related to enterprise fund employees). Direct and overlapping debt of the city accounts for 69% of the metric. The city's overall debt is alternatively expressed at 3.4% of market value. General government capital needs outlined in the 2016-2020 capital improvement plan are estimated at $657.3 million (2.2% of personal income; 1.2% of market value) which management expects to finance primarily from a combination of operating revenue and grants.

Operating Performance

Fitch believes the city retains an exceptionally strong capacity to manage revenue and budgetary pressures associated with a moderate economic downturn given its existing financial cushion (or unrestricted reserves), unlimited property tax raising capacity, and track record of expenditure control despite somewhat high charges associated with debt and retiree benefit costs. Fitch believes the city will adhere to a fairly conservative reserve policy adopted in 2012 that requires a minimum unrestricted fund balance equal to 15% to 20% of spending.

Recent budgets have begun to restore services and positions eliminated during the last economic downturn, thus reestablishing some capacity for additional cuts in the future, if needed. The city adopted a general fund budget for fiscal 2017 that is balanced without the use of reserves for the seventh consecutive year. The adopted budget represents an increase of less than 3% from the prior year. Financial statements for fiscal 2016 are not yet available, but management reports no material deviation in actual revenues and expenses relative to the budget based on actual results through the first nine months of the year.