OREANDA-NEWS. Fitch Ratings has assigned a 'AA+' rating to the following city of High Point, NC (the city) general obligation (GO) bonds:

--$20.3 million GO refunding bonds, series 2016.

The proceeds will be used to refund all or a portion of series 2007A, 2007B and 2008 GO bonds. The bonds will be sold via competitive bid on Oct. 11.

In addition, Fitch has affirmed the 'AA+' ratings on the following:

--Issuer Default Rating (IDR)

--$83.4 million outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the city backed by a pledge of its full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

The city's 'AA+' IDR and GO rating is based on the history of conservative budgeting and careful monitoring of financial results that contribute to a stable financial position and solid reserve levels. The lack of significant net pension liabilities contributes to a very low long-term liability burden. Planned debt issuance is not expected to increase the long-term liability burden considerably.

Economic Resource Base

Centrally located in the Piedmont Triad region of North Carolina, High Point benefits from its location along the I-85/I-40 corridor as well as its proximity to the nearby Piedmont Triad International Airport. The city has exhibited steady growth in population at an average annual rate of about 2% since the 2000 U. S. Census; the 2015 population is estimated at 110,268.

Revenue Framework: 'aa' factor assessment

Growth prospects for revenues are solid. General fund revenues are primarily funded from property taxes and have increased just behind U. S. economic expansion over the previous decade. Management maintains substantial room under the state's tax rate limit to increase the property tax rate.

Expenditure Framework: 'aa' factor assessment

Fixed carrying costs consume 15% of total governmental spending, primarily driven by debt service and the debt's very rapid amortization rate. The city's spending is primarily for public safety. The state's labor framework provides flexibility to manage headcount, wages and benefits.

Long-Term Liability Burden: 'aaa' factor assessment

Overall debt levels should remain moderate, given manageable additional issuance plans and the city's continued adherence to conservative debt policies. What limited net pension liabilities exist are a very low percent of personal income.

Operating Performance: 'aaa' factor assessment

The city retains significant ability to manage through a potential downturn based on superior budgetary flexibility and a very healthy level of reserves. Reserves levels are several multiples of historical revenue volatility; revenues have proved stable and the city keeps additional reserves outside the general fund.

RATING SENSITIVITIES

STRONG FINANCIAL MANAGEMENT: The city's strong financial flexibility is a key strength in the 'AA+' rating. The rating would be sensitive to any material weakening of the city's finances including larger than expected increases in fixed carrying costs.

CREDIT PROFILE

High Point and the cities of Winston-Salem and Greensboro form the Piedmont Triad. Known as the home furnishings capital of the world for almost a century, High Point hosts the High Point Market, the world's largest international home furnishings trade show, which is held biannually in downtown High Point and remains a crucial source of economic activity for the city. Manufacturing remains the largest employment sector at about 16% of all jobs. The economy continues to expand and diversify from traditional furniture and textile manufacturing into more advanced manufacturing and logistics and distribution.

The city has seen significant investments from companies in an array of industries, most notably Volvo, Thomas Built Buses and Ralph Lauren, which all continue to expand. Thomas Built Buses recently completed a $12 million expansion and added about 400 jobs in two years and is now the city's fifth largest employer at 1,622. Ralph Lauren recently completed construction on a $34 million facility and now employs 2,800 workers in the city. High Point University has doubled in size since 2005 to 4,800 students in the current year and most recently expanded to graduate programs like the new school of pharmacy. The university is now the sixth largest employer in the city after moving into the top 10 in 2010.

The top taxpayers are diverse and represent a moderate 8.9% of taxable property value. International Market Centers is the largest taxpayer at 3.5% of taxable assessed value (TAV) after a consolidation of several furniture companies. The company now owns and operates 6.5 million square feet (sf) of the 10.5 million sf of showrooms in downtown High Point and continues to expand with new investment in the city. Taxable valuation has shown only slight growth in recent years. The tax base in the fiscal 2017 budget is now 98% of the pre-recession peak. The most recent tax base reassessment, effective for fiscal 2013 and based on a five-year cycle, resulted in a moderate 3.8% decline. Management expects the next revaluation in fiscal 2018 to come in above the previous peak in fiscal 2010. Wealth levels in the city are below average, with per capita personal income at 90% of the state and 77% of the national level. The individual poverty rate was elevated at 18.9% in 2014 versus 17.2% for the state and 15.5% for the nation.

Revenue Framework

The city's primary revenue source is property tax at about 56% of fiscal 2015 general fund revenues. Sales taxes are budgeted to generate almost a quarter of general fund revenues in fiscal 2017; up from 15% in fiscal 2013 due partially to a change in the way the state law characterizes sales taxes, but also to increased gross sales in the city.

General fund revenue growth at 3.3% compounded annually outpaced inflation over the decade ended in fiscal 2014, but trailed national GDP. Only a small amount of this revenue growth is due to property tax rate increases over the period. Prospects for growth are solid based on the expanding economy and new private investment included the aforementioned expansions.

The city maintains ample capacity to raise revenues, with the fiscal 2017 tax rate of $.6475 per $1000 of assessed value (AV) well below the statutory cap of $1.50.

Expenditure Framework

Public safety is the primary general fund expenditure, at approximately half of the $90 million general fund budget. Culture and recreation account for another 20% of spending.

As with most local governments, Fitch believes expenditures are set to increase in line with or slightly faster than revenues.

Fixed carrying costs for debt service, required pension contributions and actual other post-employment benefits (OPEB) are 15% of total governmental spending. The lack of organized labor in North Carolina lends additional flexibility to management. The city reduced headcount throughout the recession based on a hiring freeze and regular atrophy of personnel. The city also budgets a significant amount of paygo capital funding each year and included $4.05 million or about 4.6% of general fund spending in the fiscal 2016 budget, up from $3.7 million budgeted for fiscal 2015.

Long-Term Liability Burden

The city's combined burden of overall debt and net pension obligation is a low 5.5% of personal income. This metric is almost entirely driven by debt at 5.3% of personal income. The majority of the debt burden comprises the overlapping debt of Guilford County at 3.5% of personal income or $142 million outstanding. The city's capital improvement plan (CIP) was significantly increased in fiscal 2017 to prepare for the next bond authorization request to voters and now totals about $168 million calling for $80 million in new debt, primarily for a new police facility. Management stipulates that the CIP includes a full list of unfunded discretionary projects and will be paired down as future years' budgets are developed and the amount of paygo funding available is determined. If the city issues the full amount of the CIP the long-term liability burden would remain in the 'aaa' range due to the rapid amortization rate of direct debt at 75% retired in 10 years. The direction of the liability burden will depend on whether economic growth, as represented by personal income, keeps pace with planned issuance by both the city and the county.

Most of the city's employees participate in a defined benefit pension plan through the Local Governmental Employees' Retirement System (LGERS), administered as a cost sharing multiple-employer plan. As of the fiscal 2015 audited financials the plan's ratio of assets to liabilities was 100% as of June 30, 2015 using Fitch's 7% investment return assumption producing no net pension liability. The city also participates in a much smaller single-employer pension plan for law enforcement officers that, while paygo funded, carries a very minimal net pension liability of $7.7 million or just 0.2% of personal income.

The city funds its OPEB on a paygo basis. The unfunded accrued actuarial liability is low at less than 1% of personal income.

Operating Performance

The city exhibits strong financial management with healthy reserve levels that are well in excess of a 'aaa' financial resilience assessment based on the city's superior budgetary flexibility and modest revenue volatility. During the recovery period from the recession the city adjusted the property tax rate a cumulative 7% in fiscals 2012 to 2014, and offset the need for further rate increases with a hiring freeze and a $3 million (3% of spending) use of excess reserves in fiscal 2013. Fiscal 2015 ended with a surplus of $3.4 million or about 3.4% of the budget, increasing available general fund reserves to a strong 33% of spending. Reserves mandated by state statute as restricted to offset accounts receivable are included in Fitch's analysis as available funds. The city keeps additional reserves in the debt service reserve fund well in excess of debt service requirements that the city could transfer to the general fund at the council's discretion.

The city budgets the use of fund balance in the original budget, but typically ends the year ahead of schedule due to conservative budget estimates for revenues and expenditures. Unaudited fiscal 2016 results from city management show a surplus that adds about $1 million or 1% of spending to fund balance. Results are ahead of the original budget due to strong sales tax revenues, an improved tax collections rate versus the past due to new collections methods and savings on salaries which are conservatively budgeted at 100% filled positions. The fiscal 2017 budget slightly reduces the prior year's property tax rate by 0.4% to $.6475 per $100 AV. The budget also appropriates $3.6 million of general fund balance and includes merit increases of up to 4%. The city's tax rate is relatively high for the Piedmont Triad region, but below some neighboring cities.