OREANDA-NEWS. Fitch Ratings assigns a rating of 'AA+' to the following general obligation (GO) bonds to be issued by Roanoke, Virginia (the city):

--\$29.2 million GO public improvement and refunding bonds series 2015.

Proceeds of the series 2015 bonds will be used to fund approximately \$20 million of city and school projects and advance refund approximately \$9.6 million of GO bonds for debt service savings.

In addition, Fitch affirms the 'AA+' rating on approximately \$177.4 million of outstanding GO bonds of the city.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the city, secured by the irrevocable pledge of the city's full faith and credit and unlimited taxing authority.

KEY RATING DRIVERS

STABLE FINANCIAL PROFILE: Reserve levels have increased following a series of positive operating results over the past six fiscal years. Fitch believes the city's reserve target provides an adequate cushion at the current rating given the city's other credit characteristics.

ECONOMIC HUB FOR WESTERN VIRGINIA: Roanoke is a regional economic hub, with a diverse economy that leverages the city's employment sector strengths.. Growing opportunities in biomedical research lend additional employment and income stability.

BELOW AVERAGE SOCIOECONOMIC PROFILE: Per capita and median household income is below state and national averages. The city's poverty rate is also above average.

AFFORDABLE DEBT POSITION: Debt levels are moderate, and servicing costs affordable. Additional capital needs and issuance plans are not expected to impact the debt profile, given the rapid rate at which existing obligations are amortized.

PENSION CONCERNS: Fitch considers expected increases in required pension funding. The city's unfunded pension liability grew significantly due to the city's formalization of cost of living adjustments, which previously have been provided on an ad hoc basis.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices and ability to reduce long-term liabilities over time.

CREDIT PROFILE

Roanoke is located in rural western Virginia along Interstate 81, at the southern end of the Shenandoah Valley and approximately 170 miles west of Richmond. The city has a stable population of approximately 98,465.

STABLE OPERATIONS AND RESERVES GUIDED BY PRUDENT POLICIES

The city concluded fiscal 2014 with a modest net surplus (after transfers) in the general fund. Fiscal 2014 was the sixth consecutive year a net surplus was recorded. The year-end unrestricted fund balance improved slightly to \$28.7 million or 11% of spending during this period. Adopted fiscal policies target a 10% unrestricted fund balance.

The fiscal 2015 \$260 million budget is essentially flat to fiscal 2014 and is balanced without any revenue enhancements or fund balance appropriation. Management is projecting better than breakeven results at year-end due to conservative budgeting. Fitch believes this projection is reasonable given historical trends.

The general fund budget is supported by a diverse resource mix led by property taxes at 41% of total revenue. Property taxes are generally very stable with excellent collection rates.

As expected, total taxable assessed value slightly declined in 2014. Projections show continued stagnation in fiscal 2015 and 2016. Neither the city's tax rate nor levy is subject to statutory or charter limitation or cap, affording the city the ability to offset AV declines and maintain revenue stability. The tax rate has been flat or has declined each year since at least fiscal 2002.

The remainder of discretionary general fund revenue is largely derived from a mix of broad-based taxes including sales tax (7.4%), utility tax (5%), business license tax (5%) and food and beverage tax (3%). The city has independent rate setting authority with respect to the majority of these sources, which affords additional financial flexibility.

WESTERN VIRGINIA ECONOMIC ANCHOR

Roanoke serves as the regional retail, transportation, manufacturing, and healthcare hub, a position bolstered by its location within the crossroads of major highway and rail systems and complemented by its airport.

As the regional center for economic activity, employment opportunities are fairly diverse and the city's unemployment rate continues to track below that of the U.S. at 5.2% in December 2014. The Roanoke region is fairly mature, and growth expectations are modest.

Income levels for city residents trail those of the state by a good margin. A low regional cost of living may offset this risk to a degree. The city's retail base is anchored by a regional mall. Retail sales have continued to increase annually over the past three years.

The city's largest employment sector, health care and social assistance, comprises 18% of employment and is anchored by Carilion Clinic. Carilion, which is headquartered in Roanoke, is also the city's largest taxpayer (at 2.7% of total AV) and private sector employer (6,600 employees). Carilion continues to expand within the city and has recently purchased property which will result in a \$16 million ambulatory outpatient center.

AFFORDABLE DEBT LEVELS

Debt is expected to remain affordable going forward. Outstanding debt equals 2.8% of market value or \$2,442 per capita, ratios considered moderate by Fitch.

The 2015 - 2019 capital improvement program (CIP) totals \$100 million or 1% of market value. The CIP will be largely financed with additional debt. Fitch does not expect much impact on the debt burden from the additional borrowing given the city's aggressive retirement of outstanding obligations. The city is scheduled to repay more than 70% of outstanding principal over the next 10 years.

Pension and retiree health costs consume a manageable share of city resources. City employees participate in one of two different pension plans and may also participate in a deferred compensation plan.

The City of Roanoke Pension Plan was 68% funded as of the June 30, 2014 valuation date, a notable decline from prior years due to the inclusion of cost of living increases in the valuation. Using Fitch's more conservative 7% return rate, the plan was estimated at a weaker 63% funded ratio. The city contributed \$11.1 million to the Roanoke plan for fiscal 2014, equal to 100% of its annual required contribution (ARC) and approximately 3.7% of total governmental spending. Future cost projections show a significant increase to the ARC which will put pressure on annual spending. The city's contribution to Virginia Retirement System was a modest \$1.1 million or less than 1% of spending. Roanoke's Virginia Retirement System (VRS) funded ratio is adequate at 76.6%.

The city paid \$1.3 million for OPEB in fiscal 2014 which accounted for 100% of the ARC or less than 1% of spending. Total carrying costs for debt service, pensions and OPEB are affordable at 15.1% of total governmental spending but will increase over the near term due to rising pension costs.