2019-12-30 UST Financial Responsibility Certification

Home Browse Search

Summary: South Bend, Indiana; General Obligation; General Obligation Equivalent Security As noted, the general fund includes the city's public safety local option income tax and COIT funds, while the nongeneral available funds include the city's rainy day fund and county economic development income tax. While reserves might decline modestly based on planned spending, we expect they will remain very strong. Very strong liquidity In our opinion, South Bend's liquidity is very strong, with total government available cash at 20.4% of total governmental fund expenditures and 1.8x governmental debt service in 2016. The numbers do not include $154 million in investments that the city also possessed at the end of 2016; however, it could convert some of the investments to liquid assets quickly. South Bend has issued bonds frequently during the past 15 years, including bonds backed by ad valorem property, hotel and motel, and income taxes, plus water and sewer revenue bonds. The city does not have a permissive investment profile. We anticipate liquidity will remain very strong, despite potential drawdowns. Adequate debt and contingent liability profile In our view, South Bend's debt and contingent liability profile is adequate. Total governmental fund debt service is 11.5% of total governmental fund expenditures, and net direct debt is 108.4% of total governmental fund revenue. Approximately 68.2% of the direct debt is scheduled to be repaid within 10 years, which is in our view a positive credit factor. The city's debt issuance plans include $12 million in special benefits and tax increment supported debt. One of the key challenges South Bend is facing, in our opinion, is the need to comply with the federal mandate to reduce the amount of untreated wastewater overflowing into the St. Joseph River, which the city estimates will cost $700 million on top of the $150 million that it has already spent on the project. Although the project will be likely be paid with water and sewer fees, it could hurt South Bend's finances (debt could more than double and the project could require governmental funds support). To avoid this, the city's engineers developed an alternative plan that could save it $500 million, and are discussing details with federal agencies. Some of South Bend's obligations were privately placed, including $3.5 million in series 2017 taxable economic development revenue bonds, $25 million in 2017 taxable economic development revenue bonds (Studebaker Project), and $27.5 million in 2015 sewage works revenue refunding bonds. We have determined the obligations do not contain any unusual covenants, acceleration provisions, or mandatory tender days that could negatively affect the city's liquidity. South Bend's combined required pension and actual other postemployment benefits contributions totaled 5.8% of total governmental fund expenditures in 2016. The city made its full annual required pension contribution in 2016. South Bend contributes to two plans administered by the state: Indiana Public Employees' Retirement Fund (PERF) and the 1977 Police Officers' and Firefighters' Retirement Fund ('77 Fund). These plans are cost-sharing, multiemployer defined benefit plans (the plans share all risks and costs, including benefit costs, proportionately by the participating employers). As of Dec. 31, 2016, the city reported a liability of $25 million for its proportionate share of the PERF net pension liability. The net pension liabilities for 1977 police officers' and firefighters' pension and disability fund were moderate, at $3 million, because these plans are almost 100% funded. South Bend's largest plan, PERF, was WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MARCH 13, 2018 5 2005656 1301888078