OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following general obligation bonds (GOs) of the city of Durham, North Carolina (the city):

--\$50.9 million GO refunding bonds, series 2015.

Bond proceeds will be used to refund various series of GO bonds for debt service savings. The bonds will be sold competitively on Jan. 29.

In addition, Fitch affirms the following ratings:

--Approximately \$197 million of outstanding GO bonds at 'AAA';
--\$35.8 million of outstanding limited obligation bonds (LOBs), series 2010 A&B at 'AA+';
--\$27 million of outstanding LOBs, series 2013 A&B at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are payable from a pledge of the faith and credit and taxing power of the city.

The LOBs are payable from annual payments made by the city subject to annual appropriation and a deed of trust on certain essential government properties.

KEY RATING DRIVERS

ROBUST ECONOMY: The economy benefits from an extensive university and healthcare presence, diverse transportation network, and proximity to the Research Triangle Park (RTP). Wealth indicators are average, unemployment is below average, and the labor pool is highly educated.

AMPLE FINANCIAL FLEXIBILITY: Prudent fiscal policies underscore strong financial management. Reserve levels are healthy and expenditure reductions to date have been moderate.

MODERATE DEBT BURDEN: The city's debt levels are expected to remain moderate given rapid amortization and the reasonable size of the capital improvement plan.

MODEST OTHER LONG-TERM OBLIGATIONS: Pension and other post-employment benefit (OPEB) costs are modest and do not pressure financial operations.

APPROPRIATION DEBT: The rating on the LOBs reflect the appropriation risk inherent in the installment payments to be made by the city to the trustee, the level of essentiality of the respective leased assets (a maintenance facility, city hall and annex, a fire station and a parks and recreation department and training center) to governmental operations, and the general creditworthiness of the city of Durham.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL POSITION: 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 unlikely.

CREDIT PROFILE

The city is located in central North Carolina with a 2014 population of 288,133. The population continues to expand, increasing 8% since 2010.

ROBUST LOCAL ECONOMY

The city's stable and diverse economy is anchored by higher education and healthcare. It is home to Duke University and Medical Center and International Business Machines' (Fitch IDR of 'A+', Stable Outlook) supply chain management division which provide over 42,000 jobs collectively. Durham has enjoyed strong employment growth relative to the state and nation over the past several years. The city's November 2014 unemployment rate was 4.3%, which compares favorably to the state rate of 5.3% and national rate of 5.5%. The economy's success is also related to nearby RTP, one of the most prominent research and development centers in the nation, which has helped draw biotechnology and high-tech firms into the city.

The presence of the universities and the nearby RTP is reflected in the high educational attainment levels. Mixed wealth levels and high poverty rates are likely due to the large student population (over 30,0000 or 12% of the city's population).

The city's tax base has been stable. The city is projecting about 3% growth in taxable assessed value in 2015, and Fitch considers this projection reasonable given positive trends in permit activity.

HEALTHY RESERVE LEVELS

Fiscal 2014 ended with an operating surplus after transfers of \$7.25 million or 4.4% of spending, increasing the unrestricted balance to \$28 million or a healthy 17.4% of spending. Positive operations are reflective of growth in property and sales taxes. The city is compliant with its general fund balance policy of maintaining unassigned fund balance at or above 12% of budgeted expenditures. An additional \$21.8 million of fund balance is restricted by state law for receivables, but Fitch considers it to be an available resource that, when included, increases the city's reserves to 30.7% of spending.

The fiscal 2015 budget is about a 3% increase over fiscal 2014 and is balanced with a 2.37 cent (9%) property tax increase. The primary drivers are additional debt service and public safety costs. Through the first quarter of the fiscal year, operations are tracking positive relative to budget and management is projecting a modest surplus. Fitch finds this projection reasonable, based on historical results and management's close monitoring of operations.

MODERATELY DEBT

Overall debt levels are moderate at \$2,893 per capita and 3% of market value (MV). Fiscal 2014 debt service equaled \$33.4 million or a high 15.6% of total governmental expenditures, reflecting a rapid principal amortization rate of 75% in 10 years.

Capital needs (excluding utilities) appear manageable at approximately \$124 million over the next five years. The major projects include a police headquarters and a 911 facility. The city anticipates issuing LOBs to finance the majority of these projects. Additionally, the city plans to fund the purchase of fleet equipment through a \$10 million installment financing. The additional debt is not expected to materially change debt burden ratios.

MANAGEABLE LONG-TERM EMPLOYEE RETIRMENT COSTS

Long-term liabilities relating to employment benefits are not expected to pressure future operations. Total pension contributions for the six plans in which city employees participate totaled \$16 million (a manageable 7% of spending) in fiscal 2014. City employees participate in three state-administered cost-sharing multiple-employer defined benefit pension plans, all of which are well-funded, as well as a small city-administered single-employer defined benefit plan, a supplemental defined contribution plan, and a deferred compensation plan. The city's defined benefit plan is poorly funded at just 8% but the unfunded accrued liability is modest at less than 0.1% of MV.

The city provides post-employment health benefits only to employees hired prior to July 2008. During fiscal 2014 the city contributed \$3.5 million or 1.6% of general government spending. The other post-employment benefits unfunded actuarial accrued liability of \$130 million equaled a low 0.05% of MV as of Dec. 31, 2013, the most recent actuarial valuation date.