Fitch Affirms Aurora, OH's GOs at 'AAA'; Outlook Stable
--$4.1 million unlimited tax general obligation (ULTGO) bonds;
--$2.4 million limited tax (LTGO) bonds.
The Rating Outlook is Stable.
The ULTGO bonds are payable from ad valorem property taxes levied without limitation, while the LTGO bonds are payable from the city's ad valorem tax levy of 2.4 mills within the 10-mill limitation provided by law.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: Management's conservative budgeting practices and demonstrated willingness to reduce expenditures has historically produced strong financial results.
RELIANCE ON INCOME TAX: The city's finances are reliant on economically sensitive income tax revenues which have experienced sound growth over the last few years, but historically have fluctuated with economic cycles leaving the city vulnerable during downturns. The city's maintenance of strong reserves serves to offset this concern.
AFFLUENT SUBURBAN COMMUNITY: The city's economy is predominantly residential but benefits from employment opportunities in nearby Cleveland, above-average wealth and income levels, and residential and commercial expansion.
MANAGEABLE LONG-TERM OBLIGATIONS: The overall debt burden is low, carrying costs are affordable, and the city has no near-term additional debt issuance plans.
ULTGO AND LTGO RATINGS AT PARITY: Fitch makes no rating distinction between the ULTGO and the LTGO bonds due to the city's strong overall financial flexibility.
STRONG FISCAL MANAGEMENT: The rating is sensitive to the maintenance of strong fiscal management and budgeting practices that underscore the city's solid financial profile. The Stable Outlook reflects Fitch's expectation that changes to such practices are unlikely.
Aurora is a predominantly residential community located in Portage County, 20 miles southeast of Cleveland. The 2014 population is estimated at about 15,700.
STRONG SOCIOECONOMICS REFLECT AFFLUENT RESIDENTIAL COMMUNITY
Aurora's economy benefits from its proximity to the Cleveland metro area, which helps attract a highly skilled labor force. City income levels are high at 151% of the national average on a per capita basis and 152% on a median household basis. Unemployment levels for the county are below state and national averages.
Economic development activity within the city is healthy, with a number of local businesses expanding, including some of the city's top employers.
STRONG FINANCIAL PERMORMANCE DESPITE INCOME TAX DEPENDENCE
Approximately 79% of general fund revenues are derived from a permanent 2% income tax last increased by voters (from 1%) in 2003. The income tax includes a corporate net profits tax as well as a tax on the income of people who work in Aurora regardless of residence and residents who work elsewhere. The latter can deduct income tax payments made to other cities. The city experienced a 7.8% increase in income tax revenues in 2014.
The city's largest income tax payer, a diverse industrial and commercial parts distributing company, has historically contributed over 20% of total income tax receipts (employee withholdings and net profit taxes) and 16% of total general fund receipts in fiscal 2014. Fitch's concern about this high level of concentration is somewhat allayed by the company's deep roots in the city.
On a GAAP basis, the city finished fiscal 2014 with a $994,000 increase in unrestricted fund balance, bringing it to $9.1 million, or a strong 61% of expenditures. This amount is well above the city's informal policy reserve level of four months of revenue. Consistently positive variance between budget and actual performance is largely a result of the city's conservative budgeting of tax revenues.
On a cash basis, year-to-date results for the nine months ending Sept. 30, 2015, are positive with total general fund revenue collected equaling 82% of budget while total expenditures are tracking 68% of budget. Year-to-date results show an addition to general fund balance of approximately $1.2 million, to a total of $9.1 million (on a cash basis), equal to an ample 59% of budgeted 2015 expenditures. The city has historically transferred excess surplus of the general fund to establish and strengthen reserves in other areas, and management is anticipating the transfer of roughly $1 million to capital at the end of fiscal 2015.
The city's five-year cash projection includes 3% annual growth in income taxes, which Fitch views as conservative given actual receipts have come in around 6% or higher than budget for the previous five years.
MANAGEABLE LONG-TERM LIABILITIES
Overall debt levels are moderate at 2.3% of taxable market value and $2,438 per capita. Debt amortization is above average with 78% retired in 10 years. Capital needs for both the city and overlapping school district are expected to be minimal and neither the city nor the school district has plans to issue additional debt in the foreseeable future.
The city participates in the Ohio Public Employees Retirement System (OPERS) and the Ohio Police and Fire Pension Fund (OP&F) and contributes to the plans in accordance with its statutorily required contribution. OPERS is relatively well-funded, with funding levels at 84% using an 8% discount rate, or an estimated 76% using a Fitch-adjusted rate of 7%. Funding levels are below-average for the OP&F at 64% (or 56% under Fitch's 7% discount rate). Carrying costs are low at 12.5% of governmental fund spending.