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3/52015 Fitch Ratings I Press Release <br /> maintain the same rating on the lease revenue bonds and the implied ULTGO <br /> RATING SENSITIVITIES <br /> CONTINUED STRONG FINANCIAL POSITION: The city's continued high rating is contingent upon the <br /> maintenance of strong reserve levels. Fitch expects this trend to continue given managements history of <br /> prudent financial and budgeting practices. <br /> CREDIT PROFILE <br /> South Bend is the fourth largest city in Indiana, located in the north central part of the state, approximately five <br /> miles south of the Michigan border and 90 miles east of Chicago. The University of Notre Dame is adjacentto <br /> the city.After decreasing 6.1%from 2000 to 2010, population has stabilized, totaling 100,886 in 2013. <br /> SOLID RESERVE LEVELS MAINTAINED <br /> Since the implementation of the circuit breaker legislation in 2007,which limits property taxes to a percentage <br /> of gross assessed value, city management has proactively reduced expenditures and increased local option <br /> income taxes to partially offsetthe decline in property tax revenues. This increased reliance on economically <br /> sensitive income taxes subjects the city to some revenue volatility. <br /> For 2013 (year-end Dec. 31), the city recorded an operating deficit aftertransfers of$1.1 million (1.6% of <br /> spending). Reserve levels remained solid,with an unrestricted general fund balance equivalent to 36.9% of <br /> spending.Additionally,the city maintains a rainy day fund, outside the general fund. The 2013 balance was <br /> $8.6 million, equivalent to a healthy 11.7% of general fund spending. The fund would only be accessed if no <br /> other options are available, and is unlikely to ever be spent. <br /> For 2014, the city's estimates indicate a small cash-basis general fund operating surplus and a small increase <br /> in fund balance. The 2015 budget is balanced with no use of fund balance. <br /> Positively, management has a cash reserve policy in place for certain funds to serve as fiscal protection against <br /> the risk of revenue shortfalls, emergencies, and unstable property tax collections.As of Jan. 31, 2015,the <br /> general fund cash reserve totaled 46% of expenditures compared to a policy of 25%. Fitch expects the city to <br /> continue to maintain budgetary balance and strong reserves. <br /> ECONOMY BOLSTERED BY UNIVERSITY PRESENCE <br /> Manufacturing is still a major component of the area economy butthe city also has strong service-based sectors <br /> with the University of Notre Dame,which is adjacentto the city, providing stability as the largest employer <br /> (approximately 5,590 employees). Other major employers include Beacon Health System (3,450), South Bend <br /> Community School Corporation (2,880)and AM General (2,658). <br /> Increased economic activity due to the recovering economy was evidenced in 2014 as the city reported lower <br /> unemployment rates and growth in employment and laborforce numbers. The December 2014 unemployment <br /> rate of 7.4%was down from 8.6% a year earlier, but still above the state (5.8%) and nation (5.4%). Employment <br /> and labor force growth over the same time period were 2.7% and 1.4%, respectively, below very strong state <br /> increases but higherthan U.S. growth rates. <br /> City income levels are below average,with per capita income 78% of the state and 68% of the national <br /> average. Poverty levels are almost double those of the state and nation. Low income levels are likely reflective, <br /> in part, of a large student population. <br /> Taxable assessed valuation, about$2.2 billion, improved slightly for 2015, after declining almost 10%from <br /> 2010 to 2014. The tax base is moderately concentrated with the top 10 taxpayers including a mix of utilities, <br /> manufacturing and retail, comprising 14.1% of taxable value. Current property tax collections are satisfactory, <br /> averaging 94.4% overthe lastthree years,total collections are stronger averaging 99%. <br /> MANAGEABLE DEBT PROFILE <br /> Overall debt ratios are moderate at$2,206 per capita and 4.6% full value and should remain stable as the city <br /> has modest debt issuance plans and amortization is above-average. <br /> 2/4 <br />