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Borough bonds get 'AA' ratings
December 27, 2013
Fitch Ratings, a global leader in financial information services with operations in more than 30 countries, recently assigned an "AA" rating to two Matanuska-Susitna Borough bonds.

They are the $19.3 million general obligation (GO) transportation system bonds, 2014 series A, which are scheduled to be sold via negotiation on or about January 8, and the $275.9 million outstanding GO bonds, for which, Fitch determined, the rating outlook is stable.

The bonds are secured by an unlimited ad valorem property tax levied against all property within the borough.

Fitch Ratings listed the following key ratings drivers:

   * Strong financial performance: The borough's financial performance is strong with generally positive operating results and healthy reserves.

   * Limited population and economy: The borough's economy is inherently constrained by a relatively small population base and the seasonality of some local economic activity. The economy has gradually expanded and diversified, reducing this concern, but it remains the key factor limiting the rating.

   * Healthy debit profile: The debt burden is moderate and most of the debt qualifies for state-reimbursement, limiting pressure on the local tax base. Pension and other post-employment liabilities are limited with significant state support for retiree costs.

   * Solid management practices: The borough benefits from healthy financial management practices, including conservative budgeting and a strong fund balance policy.

The borough, Fitch reported, is now the third most populous Alaska municipality, with 93,801 people. The local economy and population have expanded rapidly since the early 1990s when increasing numbers of Anchorage workers began moving to the southern area of the rural borough due to the lure of affordable housing and large lots. About a third of borough workers commute to Anchorage, while about 12% commute outside of the region to work in the Alaska oil fields and elsewhere.

The borough experienced a relatively muted version of the recent national economic downturn with no declines in taxable assessed values (TAV), continuing population growth and less pronounced increases in joblessness.

The October 2013 non-seasonally adjusted unemployment rate of 6.4% was below the national average of 7.0%. The borough's jobless rate has averaged 7.2% over the past 12 months and has been on a generally declining trend for the last three years, albeit with fairly tepid job growth. Annual average unemployment rates tend to be higher than the national average because of the seasonality of work in Alaska.

Tax base growth has slowed significantly in recent years, but did not experience declines common in most of the country during the recession.

TAV increased 3.7% in 2013 to $8.7 billion with growth averaging 2.2% since 2009.

Financial performance, they find, has been significantly stronger than the typical U.S. municipality, offsetting the limitations of the gradually diversifying economy.

The borough's general fund balance grew in seven of the past eight fiscal years through June 30, 2013. The borough used about $11 million in unrestricted fund balance for planned capital spending in fiscal 2012. Unrestricted general fund balance dropped to $53.3 million, but remained very strong at 74.2% of non-educational spending.

The Matanuska-Susitna Borough School District's property tax levy is booked as a revenue and expense of the borough, but represent a pass-through of taxes to the district that does not put significant additional strain on the municipality's budgets. As such, Fitch considers the municipality's unrestricted fund balance as a percentage of non-educational expenditures the best measure of its financial cushion.

Fitch expects fund balance to remain near its current robust level over at least the next two years. Unaudited actual results for fiscal 2013 show fund balance resuming its upward trajectory, and management expects the borough's fiscal 2014 results to show approximately balanced operations.

The borough's fiscal 2014 budget shows a $12 million draw on fund balance, but the borough's budgets tend to be very conservative in terms of revenue and expense projections.

Similar projected deficits have yielded balanced operations and management expects the same this year.

Financial management practices in the borough, Fitch finds, are solid with consistently conservative budgeting and a healthy fund balance policy.

"Financial decision-making appears efficient, with budgets delivered on time and in compliance with policies," the report states. "Failure to maintain a strong financial cushion and adhere to reserve policies would place pressure on the borough's GO bond rating."

The report also cites manageable long-term debt liabilities.

"Total net debt including overlapping jurisdictions is moderate at $3,312 per capita or 3.6% of TAV without adjustments for state support," they write. "The debt burden drops to a low $1,419 per capita or 1.5% of TAV after taking state debt reimbursement for eligible bonds into account. Amortization is healthy with 60% of bonds repaid in 10 years and all bonds repaid in 20 years."

Even after a planned $50 million of additional bond issuances in 2014 and 2015, Fitch projects that the per capita debt burden would remain low after state reimbursement.

Pension obligations and other post-employment benefits (OPEB) are a significant but manageable expense. The borough routinely makes its full annually required contributions to the Alaska Public Employees Retirement System, the Supplemental Benefits System, and the Alaska Teachers Retirement System. The state is responsible for any actuarially required contributions in excess of 22% of payroll.

Carrying costs for debt service, pension and OPEB are moderate at 14.9% of governmental funds spending. Debt service accounts for the bulk of carrying costs, and the state of Alaska reimburses the borough for about 60% of debt service.

Additional information is available at www.fitchratings.com.
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