Loading...
HomeMy WebLinkAbout08(A) - Resolution Approving the Issuance and Sale of General Obligation Bonds Series 2023A ReportSummary: Prior Lake, Minnesota; General Obligation Primary Credit Analyst: Melody W Vinje, Englewood + 1 (303) 721 4163; melody.vinje@spglobal.com Secondary Contact: Jessica Olejak, Chicago + 1 (312) 233 7068; jessica.olejak@spglobal.com Table Of Contents Credit Highlights Outlook Rating Above The Sovereign Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 12, 2023 1 Summary: Prior Lake, Minnesota; General Obligation Credit Profile US$1.83 mil GO bnds ser 2023A due 12/15/2033 Long Term Rating AAA/Stable New Prior Lake GO bnds Long Term Rating AAA/Stable Upgraded Prior Lake ICR Long Term Rating AAA/Stable Upgraded Prior Lake GO Long Term Rating AAA/Stable Upgraded Prior Lake GO Long Term Rating AAA/Stable Upgraded Prior Lake GO Long Term Rating AAA/Stable Upgraded Credit Highlights • S&P Global Ratings raised its long-term rating to 'AAA' from 'AA+' on Prior Lake, Minn.'s existing general obligation (GO) debt. • At the same time, we assigned our 'AAA' long-term rating to the city's $1.8 million series 2023A GO bonds. • The outlook is stable. • The upgrade reflects our view of the city's consistently very strong financial performance supported by its forward-looking management team, coupled with a very strong economy. Security The 2023A bonds are secured by the city's unlimited-tax GO pledge; debt service on the 2023A bonds is also payable from specially assessments. Officials will use bond proceeds for street projects. Credit overview The rating reflects our opinion that Prior Lake will continue to maintain extremely strong finances despite growth pressures and costs associated with expansion of fire services. Prior Lake's fiscal 2022 results were in line with historically steady financial performance and robust reserves. The city is budgeting for balanced operations in fiscal 2023 while establishing full-time in-house fire services, despite not receiving the Staffing for Adequate Fire and Emergency Response (SAFER) federal grant (see our previous analysis on the city, published Aug. 4, 2022, on RatingsDirect). Management's multi-scenario forecasting and phased-in levy increase has positioned the city to support the new department. In our opinion, the city's well-paced growth is the result of its revenue-raising flexibility, proactive management team, and comprehensive long-term planning, which we view as credit strengths. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 12, 2023 2 The city's general fund budget has increased by approximately 13% from 2021-2023. These expenses are supported by layered-in levy increases (13% from 2022-2023) and proportionate cost-share agreements of benefiting communities for fire services with the City of Credit River and Spring Lake Township based on net tax capacity, of which Prior Lake's share is 70% of the cost. Public safety costs (fire and police services) are budgeted to rise through fiscal 2024, which will be the first full year of wages for the full-time fire department. Police service expenses also grew, partially attributable to an agreement with the Shakopee, Mdewakanton Sioux Community (SMSC) to provide enhanced services at the Mystic Lake Casino. This longstanding service agreement with SMSC is updated annually, enabling the city to recoup associated expenses for services. Prior Lake is about 24 miles southwest of the Twin Cities and has experienced sustained residential growth, increasing its population about 13% in the past decade. Tax revenues make up 65% of general fund revenues and are expected to trend positively due to greater net tax capacity from new buildings and planned levy increases. The city's original fiscal 2023 budget included use of about $300,000 of reserves (1.5% of general fund expenditures) for capital projects, however it may delay the projects as it evaluates further expenditures and the impact on the annual tax levy. The city has a 2014 private lease-purchase agreement, with approximately $728,225 outstanding. Events of default are standard under the agreement and debt acceleration, in an event of default, is limited to the amounts owed in the current fiscal year, with a maximum amount of approximately $300,000. We therefore do not consider the lease-purchase agreement to be a contingent liability risk, and we expect the city's liquidity will remain very strong. The rating further reflects our view of the city's: • Growing tax base driven by residential building, with incomes well above the national average. Residents benefit from city's location in the St. Paul-Minneapolis-Bloomington metropolitan statistical area; • Consistently strong budgetary performance, typically with operating surpluses supporting very strong budgetary flexibility and liquidity; • Very strong management, with strong financial policies and practices under our Financial Management Assessment methodology including fund balance policy of 40%-50% of general fund expenditures, with which it routinely exceeds, and a strong institutional framework score; • Adequate debt and liability profile, with high debt service carrying costs but somewhat offset by rapid amortization. The city also has additional debt plans of about $9.6 million in the next two years; and • Prior Lake contributes to two multi-employer defined-benefit pension plans administered by the Public Employee Retirement Association of Minnesota and has single-employer other postemployment benefits (OPEB). The pension plans are underfunded (76.7% and 70.5% as of June 30, 2022) and annual contributions are based on a statutory formula that is not actuarially based, increasing the likelihood of outyear cost acceleration. The OPEB plan is pay-as-you-go funded (0% funded as Dec.31, 2021) with a $1.1 million liability. Still, annual costs remain low as a share of spending, and the city has ample operational flexibility to accommodate higher costs as they materialize. Environmental, social, and governance We analyzed the city's environmental, social, and governance (ESG) risks relative to its economy, management, budgetary outcomes, and debt and liability profile, and view them as neutral within our credit analysis. We note that the city could be suspectable to occasional flooding in areas located around the lake. However, we believe this risk is WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 12, 2023 3 Summary: Prior Lake, Minnesota; General Obligation mitigated by the city's flood-response policy and maintenance of very high reserves. Outlook The stable outlook reflects our expectation that Prior Lake will maintain balanced operations, supported by the city's growing tax base and phased-in levy increases. Downside scenario We could lower the rating if financial performance and reserves weaken substantially, particularly if reserves fall well below the city's reserve policy without a credible plan to restore to compliance. Rating Above The Sovereign Prior Lake's GO bonds are eligible to be rated above the sovereign because we believe the city can maintain better credit characteristics than the U.S. in a stress scenario. Under our "Ratings Above The Sovereign—Corporate And Government Ratings" criteria (published Nov. 19, 2013), U.S. local governments are considered to have moderate sensitivity to country risk. The institutional framework in the U.S. is predictable for local governments, allowing them significant autonomy, independent treasury management, with no history of federal government intervention. We believe Prior Lake's financial flexibility is sufficiently demonstrated by its very strong budgetary reserves and liquidity and its ability to levy and collect own-source revenues. Prior Lake, Minn.--Key Credit Metrics Most recent Historical information 2022 2021 2020 Very strong economy Projected per capita EBI % of U.S.145.8 Market value per capita ($)183,750 Population 27,026 26,654 County unemployment rate(%)2.3 Market value ($000)4,966,019 4,449,577 4,150,984 Ten largest taxpayers % of taxable value 4.5 Adequate budgetary performance Operating fund result % of expenditures 0.1 1.9 15.8 Total governmental fund result % of expenditures -1.2 -3.0 6.6 Very strong budgetary flexibility Available reserves % of operating expenditures 88.1 92.1 88.7 Total available reserves ($000)14,313 13,802 12,414 Very strong liquidity Total government cash % of governmental fund expenditures 167.5 164.3 152.9 Total government cash % of governmental fund debt service 964.4 926.7 753.7 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 12, 2023 4 Summary: Prior Lake, Minnesota; General Obligation Prior Lake, Minn.--Key Credit Metrics (cont.) Most recent Historical information 2022 2021 2020 Very strong management Financial Management Assessment Strong Adequate debt and long-term liabilities Debt service % of governmental fund expenditures 17.4 17.7 20.3 Net direct debt % of governmental fund revenue 114.1 Overall net debt % of market value 2.8 Direct debt 10-year amortization (%)99.3 Required pension contribution % of governmental fund expenditures 5.0 OPEB actual contribution % of governmental fund expenditures 0.0 Strong institutional framework Data points and ratios may reflect analytical adjustments. EBI--Effective buying income. OPEB--Other postemployment benefits. Related Research • Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022 • 2022 Update Of Institutional Framework For U.S. Local Governments Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 12, 2023 5 Summary: Prior Lake, Minnesota; General Obligation WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 12, 2023 6 STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating- related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Copyright © 2023 by Standard & Poor’s Financial Services LLC. All rights reserved.